A recent Law 360 story by Rick Archer, “FTX Examiner Says $200M in Fees ‘Remarkable’ But Justified”, reports that the fee examiner in the FTX Chapter 11 case has told a Delaware bankruptcy judge that the professionals in the case have racked up more than $200 million in bills since November, a figure she said was "remarkable" but justified by the chaos created by the cryptocurrency giant's collapse. In a report, fee examiner Katherine Stadler said the charges so far from the law firms and financial consultants retained by FTX and its unsecured creditors are for the most part justified by the professionals' scramble to deal with the "smoldering heap of wreckage" left by FTX.
"Without question, the fees incurred to date are remarkable, but so is the professionals' performance," Stadler said. FTX filed for bankruptcy on Nov. 11 after weeks of turmoil caused by the failure of its FTT digital token, which led to a run on the bank as customers rushed to withdraw their cryptocurrency holdings from the platform. Subsequent internal investigations revealed that about $65 billion in FTX assets were transferred to Alameda Research — a cryptocurrency hedge fund founded and controlled by former FTX CEO Sam Bankman-Fried — through a back door in the platform, leaving a shortfall in customer funds.
Stadler said the size of the case and the alleged role of management malfeasance in the collapse were both unremarkable. "What makes these cases extraordinary, however, is the largely unregulated financial system in which the debtors (and other similar financial technology companies) operate, combined with their global scope, the complete absence of corporate records, and the non-existence of even the most basic corporate governance," she said.
As a result, the firms involved found themselves in an "'all-hands-on-deck' crisis," she said, resulting in missteps like deploying teams that later proved to be too large and retaining experts that ultimately were not needed, but nothing "wholly unreasonable in the moment." "They did not have the luxury of carefully considering staffing decisions, developing the most efficient teams, or deploying resources with military precision," she said.
The report specifically dealt with the first 90 days of the case, during which 242 attorneys billed nearly 35,000 hours, Stadler said. She reported that a total of about $88.8 million in fees and expenses had been billed through Jan. 31, including $42.1 million from FTX counsel Sullivan & Cromwell LLP and $28.5 million from its financial adviser, Alvarez & Marsal. Paul Hastings LLP, lead counsel for the unsecured creditors committee, billed $5.5 million. The committee's forensics investigation consultant, AlixPartners, billed $3.2 million.
Stadler recommended that a total of $85.1 million in fees and expenses be approved at the fee hearing scheduled for June 28. She also recommended that a $2.4 million bill from Ernst & Young for tax services for FTX be deferred to the next fee application period, saying she had not completed her review, and said the other firms had stipulated to about $1.3 million in reductions of their bills.