Bankrupt cryptocurrency exchange FTX announced last month that it would abandon its plan to restart the exchange and instead focus on fully compensating creditors. John Reed Stark, former director of the SEC’s Office of Internet Enforcement, recently criticized FTX’s previous restructuring plan, suggesting it may have been a strategy to profit from the bankruptcy process.
FTX, a cryptocurrency exchange that filed for bankruptcy protection under Chapter 11 of the US Bankruptcy Code in November 2022, has decided to abandon its plan to restart the exchange and instead focus on fully compensating creditors. This means that FTX may now proceed with liquidation under Chapter 7 of the Bankruptcy Code.
Former director of the US Securities and Exchange Commission’s (SEC) Office of Internet Enforcement, John Reed Stark, tweeted on the 3rd of this month, analyzing that FTX’s previous restructuring plan may have been a way for its legal team to profit from the bankruptcy process. Stark sarcastically suggested that considering the huge profits FTX’s legal team has obtained from the bankruptcy process, all FTX clients should receive a big thank-you from FTX’s legal team. By 2024, each member of FTX’s legal team may be able to afford a new beachfront villa.
Stark mentioned that he had already anticipated that FTX’s restructuring plan, implemented under Chapter 11 of the Bankruptcy Code, is unlikely to succeed. He compared the restructuring of FTX to a combination of “Murder, Inc., a drug trafficking syndicate, and Madoff Investment Advisory Services.”
According to Cointelegraph, from November 2022 to June 2023, FTX’s lawyers and restructuring team billed over $200 million. However, Katherine Stadler, the court-appointed fee examiner, stated in a report submitted on June 20th of last year that these fees were “not currently unreasonable.”
FTX’s expenditure on legal and consulting fees reached up to $53,000 per hour. Compensation documents released from December 5th to December 16th showed that FTX’s bankruptcy legal team charged at least $1.181 billion from August 1st to October 31st, averaging $1.3 million per day or $53,300 per hour.
Stark pointed out that according to some estimates, the average hourly rate for FTX’s bankruptcy legal team and other experts is as high as $1,800 (top-tier law firm partners can charge up to $2,375 per hour), earning up to $1.5 million per day. So far, they have earned nearly $250 million in total fees, which Stark considers excessively high and a form of profiteering.
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