Crypto meltdown a boon for bankruptcy lawyers

Dec 2 (Reuters) – Turmoil in the cryptocurrency industry has rattled major exchanges and sent the value of digital assets tumbling, but at least one group stands to win: bankruptcy lawyers.

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

Big law firms can rack up more than $100 million in legal fees during a protracted bankruptcy, experts said.

“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 lot of new issues, and it shouldn’t be surprising that they’re going to require a lot of attorney involvement.”

The value of bitcoin has fallen 65% so far this year, dragging down other crypto-assets and reeling investors. The spectacular collapse of FTX last month sent fresh shockwaves through the cryptocurrency industry.

One US law firm, Kirkland & Ellis, is representing BlockFi in its bankruptcy case filed on 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 billing rates in the industry, charging up to $1,995 an hour for work by its partners in the Celsius and Voyager cases, according to court filings. The firm, which did not respond to a request for comment, has so far billed an average of about $3.3 million each month in each of those cases.

Law firm billing rates are not normally public, but in bankruptcy cases, attorneys for the debtor company must itemize their billings and request a judge’s approval for their fees.

The lawyers are paid from the assets of a bankruptcy estate, and experts said judges rarely demand significant reductions in professional fees.

“Kirkland is already dominant in large public company bankruptcies, and it’s just expanding into a new area of ​​bankruptcy,” said Lynn LoPucki, a University of Florida law professor who has studied bankruptcies and corporate restructuring. “If they dominate crypto, that will keep them at the top.”

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

Kirkland partner Joshua Sussberg is lead counsel in all three of the firm’s crypto-related bankruptcies. He has been involved in many major corporate bankruptcies in recent years, including for movie theater 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 Kumtor Gold Company, the firm’s partners billed up to $1,825 an hour.

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

As crypto bankruptcies increase, the law firm with the highest maximum billing rate disclosed so far is Latham & Watkins, which advises Celsius on regulatory issues and is the debtor’s counsel to Three Arrows Capital. The top rate is $2,075 an hour, according to court documents. Latham also did not respond to a request for comment.

The cryptocurrency cases are particularly important to law firm bankruptcy practices as Chapter 11 filings brought on by the COVID-19 pandemic have begun to slow the fight of wholesale traders, legal experts said. Crises within certain industries, such as cryptocurrency, can keep business flowing and provide years of steady income.

Lawyers in the crypto cases must deal with a host of issues new to bankruptcy law, including whether digital assets deposited on a platform are owned by the client or the platform itself, according to bankruptcy law experts. This determination can help decide how much of their deposit a client is likely to recover from a bankrupt firm.

Levitin, a former member of the restructuring department at the law firm Weil, Gotshal, & Manges, said such complex questions ask top lawyers.

“Otherwise it just becomes a grab race where it’s the biggest and most sophisticated creditors who grab 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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