Crypto meltdown a boon for bankruptcy attorneys

DEC 2 (Reuters) – Turmoil in the cryptocurrency industry has rocked major exchanges and shattered the value of digital assets, but at least one group will benefit: bankruptcy lawyers.

High-profile bankruptcies of crypto exchange FTX, hedge fund Three Arrows Capital, and crypto lenders BlockFi, Celsius Network, and Voyager Digital Ltd are creating new opportunities — and steep fees — for law firms advising troubled companies.

According to experts, large law firms can rake in more than $100 million in legal fees during a long-running bankruptcy.

“You have to pay the gravedigger,” said Adam Levitin, a law professor at Georgetown University who specializes in bankruptcy law. “These are complicated cases with a number of novel problems, and it should come as no surprise that they will require strong legal involvement.”

Bitcoin’s value has fallen 65% so far this year, which has hurt other crypto assets and left investors reeling. FTX’s spectacular implosion last month sent fresh shockwaves through the cryptocurrency industry.

A U.S. law firm, Kirkland & Ellis, is representing BlockFi in its bankruptcy case filed Monday and is also lead counsel for Celsius Network and Voyager Digital, both of which filed for bankruptcy earlier this year.

Kirkland has some of the highest payroll rates in the industry, charging up to $1,995 an hour for its partners’ work in the Celsius and Voyager cases, according to court records. The firm, which did not respond to a request for comment, has so far billed an average of about $3.3 million per month in each of these cases.

Billing rates for law firms are not usually public, but in bankruptcy cases, the debtor firm’s attorneys must detail their bills and seek a judge’s approval of their fees.

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The lawyers are paid out of the assets of a bankrupt estate, and experts said judges rarely ask for significant reductions in attorneys’ fees.

“Kirkland already dominates large public company bankruptcies, and this is expanding into a new bankruptcy area,” said Lynn LoPucki, a University of Florida law professor who has focused on bankruptcy and corporate restructuring. “If they dominate crypto, they will stay on top.”

Among the larger recent cases, Kirkland earned $83 million in attorneys’ fees and reimbursements for his work in satellite service provider Intelsat’s long-running bankruptcy, billing more than 87,000 hours, court filings show.

Kirkland partner Joshua Sussberg is lead counsel on all three of the firm’s crypto-related bankruptcies. He has been involved in many major corporate bankruptcies over the past few years, including cinema chain Cineworld Group and JC Penney Co Inc.


Wall Street firm Sullivan & Cromwell is bankruptcy counsel for FTX. The firm has not yet disclosed its fees, but in a 2021 case involving the Kumtor Gold Company, the firm’s partners were charging up to $1,825 per hour.

Sullivan & Cromwell is also representing Alameda Research, a trading company founded by FTX founder Sam Bankman-Fried, as creditor in the Celsius and Voyager bankruptcies. The law firm did not respond to a request for comment.

With crypto bankruptcies on the rise, Latham & Watkins is the law firm with the highest reported maximum settlement rate to date, advises Celsius on regulatory issues and is debt counsel for Three Arrows Capital. According to court records, the maximum rate is $2,075 per hour. Latham also did not respond to a request for comment.

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The cryptocurrency cases are of particular concern to law firms’ bankruptcy practices as Chapter 11 filings were prompted by the COVID-19 pandemic and major retailers’ struggles have slowly eased, legal experts said. Crises in certain sectors, such as Cryptocurrencies, such as cryptocurrencies, can keep the business going and bring stable revenue for years to come.

Lawyers in the crypto cases have to deal with a variety of issues new to bankruptcy law, including whether digital assets deposited on a platform belong to the customer or the platform itself, according to bankruptcy law experts. This determination could help determine how much of their deposit a customer is likely to recover from a bankrupt company.

Levitin, a former member of the restructuring team at the law firm Weil, Gotshal & Manges, said such complex issues require top-notch lawyers.

“Otherwise it’s just going to be a grab race with the biggest and most sophisticated creditors grabbing everything for themselves,” he said.

Reporting by Andrew Goudsward in Washington Editing by David Bario and Matthew Lewis

Our standards: The Thomson Reuters Trust Principles.

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