Former United States Securities and Exchange Commission (SEC) official, John Reed Stark, has raised concerns about the FTX restructuring plan, suggesting that it may serve as an opportunity for the exchange’s legal team to profit from the bankruptcy process.
Stark took to a social media platform to express his skepticism, humorously suggesting that all FTX customers should receive a sarcastic “Thank You” note from the exchange’s defunct legal team for the substantial profits they have reportedly made during the bankruptcy proceedings.
He even quipped that each member of the legal team might soon be able to afford a new beach house in 2024.
During a January 31st hearing held in the U.S. Bankruptcy Court for the District of Delaware, FTX’s lawyer, Andy Dietderich of Sullivan & Cromwell, clarified that despite extensive efforts, there were no intentions to relaunch FTX under the Chapter 11 bankruptcy framework, known as FTX 2.0.
Stark had previously expressed doubts about the success of the Chapter 11 FTX reorganization plan, comparing the challenge of restructuring FTX to trying to reorganize a combination of notorious entities such as “Murder Incorporated, The Cali Drug Cartel, and Madoff Investment Advisory Services.”
Legal fees and expenses incurred during the bankruptcy proceedings have drawn attention. Lawyers and the restructuring team managing FTX billed over $200 million between November 2022 and June 2023.
These fees were reviewed and deemed reasonable by the court-appointed fee examiner, Katherine Stadler, who described them as “not wholly unreasonable at the moment” in a report filed on June 20, 2023.
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However, during the quarter ending October 31, 2023, FTX incurred substantial costs, spending approximately $53,000 per hour on legal and advisory fees, according to recent compensation filings.
Documents from December 5 to December 16, 2023, revealed that the bankruptcy legal team billed at least $118.1 million from August 1 to October 31, 2023, averaging $1.3 million per day or $53,300 per hour over the 92-day period.
In a further development, on February 1, FTX submitted a request in a Delaware court to sell its $175 million claim against the bankrupt Genesis Global Capital, with Alameda Research owning the claim.
If approved, FTX would have the flexibility to sell the claim in its entirety or in parts, allowing for optimal timing based on market conditions.
FTX’s troubles began in November 2022 when irregularities were uncovered in its accounts, ultimately leading to its collapse.
Genesis Global Capital had $175 million tied up in FTX accounts at the time, but it asserted that these funds did not impact its market-making activities.
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