Professionals, including lawyers, accountants, and consultants, have collectively earned over $700 million in fees in the aftermath of the collapse of several digital asset firms last year, as reported by The New York Times.
The report highlights an unforeseen ‘financial windfall’ for legal and bankruptcy-related professionals due to unfortunate crypto incidents.
While the fees, calculated from court filings and disclosures, are deemed substantial by both observers and victims alike, they are expected to rise even further as some bankruptcy proceedings remain unresolved.
FTX takes the lead with a total of $326.8 million in legal fees incurred after both the exchange and its sister company, Alameda Research, filed for bankruptcy in November 2022.
Crypto lender Celsius, currently in bankruptcy, trails FTX with $186.5 million in legal fees, while Voyager Digital and BlockFi have accrued $88.2 million and $59.5 million, respectively.
When examining the firms that have garnered a significant share of these fees, it becomes evident that Alvarez & Marsal has billed $126 million, while Sullivan & Cromwell and Kirkland & Ellis have billed $111 million and $103 million, respectively.
The report reveals that more than 50 professional firms and partnerships are directly profiting from the ongoing legal proceedings. These entities encompass financial institutions, blockchain transaction companies, and affiliated analysts.
A primary factor contributing to the substantial legal fees is the inherent uncertainty surrounding digital asset regulations, which has led to increasingly intricate processes and prolonged durations for crafting legal documentation.
Victims lament the high costs of litigation
Throughout this ordeal, it’s the victims who have borne the brunt of protracted and costly bankruptcy proceedings. Bankruptcy proceedings, in general, tend to be expensive due to the necessity of unraveling intricate legal documents and tracing elusive assets.
Numerous victims have expressed their frustration over the exorbitant legal fees, labeling them as ‘unnecessary’ and ‘costly’ for investors who have lost their life savings.
Daniel Frishberg, a 19-year-old investor who lost $3,000 in Celsius, called the substantial fees ‘absurd,’ emphasizing, ‘At every hearing, they have an army of people there, and most of them don’t need to be there. You don’t need 20 people taking notes.’
Last year, Voyager creditors lodged a protest against the staggering fees, alleging that the bankruptcy lawyers had racked up enormous bills, including monthly hotel expenses reaching $10,000.
In their defense, attorneys argue that their fees are commensurate with market rates and are crucial for recovering billions on behalf of the creditors. Sullivan & Cromwell, the bankruptcy lawyers for FTX, disclosed that they have successfully recovered over $7 billion for the beleaguered exchange.
A spokesperson for FTX’s new management team recently acknowledged that the bankruptcy ‘was extraordinary in almost every conceivable way,’ necessitating lawyers to work tirelessly to trace user funds across multiple jurisdictions.
