Lawyers land $700 million bounty from crypto collapse

The collapse in cryptocurrency prices last year forced a procession of major firms into bankruptcy, trigging a government crackdown and erasing the savings of millions of inexperienced investors. But for a small group of corporate turnaround specialists, crypto‘s implosion has become a financial bonanza.

Lawyers, accountants, consultants, cryptocurrency analysts and other professionals have racked up more than $700 million in fees since last year from the bankruptcies of five major crypto firms, including the digital currency exchange FTX, according to a New York Times analysis of court records. That sum is likely to grow significantly as the cases unfold over the coming months.

Large fees are common in corporate bankruptcies, which require complex and time-intensive legal work to untangle. But in the crypto world, the mounting fees have sparked widespread outrage because many of the people owed money are amateur traders who lost their personal savings, rather than corporations with the ability to weather a financial crisis. Every dollar in fees is deducted from the pool of funds that will be returned to creditors at the end of the bankruptcies.

The fees are “exorbitant and ridiculous,” said Daniel Frishberg, a 19-year-old investor who lost about $3,000 when the crypto company Celsius Network filed for bankruptcy last year. “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.”

To tally the overall fees, the Times analyzed more than 5,000 pages of billing statements and other court documents from the bankruptcies of the crypto firms FTX, Celsius Network, Voyager Digital, BlockFi and Genesis Global. The totals include fees that a bankruptcy judge has formally approved as well as some that are awaiting approval and could be reduced.Among the biggest winners from the five cases are two major law firms. Sullivan & Cromwell, which is managing FTX’s bankruptcy, has charged more than $110 million in legal fees and recorded more than $500,000 in expenses. Kirkland & Ellis has billed $101 million for its work on three of the crypto bankruptcies, with $2.5 million in expenses, according to the Times’ analysis.

More than 50 other professionals have also profited, including specialized startups that analyze crypto transactions as well as accountants, consultants and investment bankers, according to the analysis.The ballooning costs reflect the broken promises of crypto, a renegade industry that was pitched to amateur traders as a force for equality in the ultra-stratified world of high finance. After months of rising prices and social media hype, the crypto market last year spiraled into a crisis that cost investors billions in savings and allowed lawyers, bankers and other traditional power brokers to reap immense profits.

As the industry has struggled to rebound, the bankruptcy fees have come under intense scrutiny from the hyper-online community of crypto obsessives, who have spent hundreds of hours analyzing billing statements that the companies are required to file publicly in court.

Lawyers and other bankruptcy professionals argue that they are charging market rates for difficult work that will help recover the money that crypto investors lost.

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