Dec 2 (Reuters) – Turmoil in the cryptocurrency industry has rocked major exchanges and sent the value of digital assets plummeting, but at least one group has everything to gain: 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 generating new opportunities – and significant costs – for law firms advising investors. companies in difficulty.
Large law firms can reap more than $100 million in legal fees in a long-running bankruptcy, experts have 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 bunch of new issues, and it shouldn’t be surprising that they require a lot of lawyer involvement.”
Bitcoin’s value has fallen 65% so far this year, dragging down other crypto assets and leaving investors reeling. The spectacular implosion of FTX last month has sent new shockwaves through the cryptocurrency industry.
A US law firm, Kirkland & Ellis, is representing BlockFi in its bankruptcy filing filed on Monday and is also lead counsel for Celsius Network and Voyager Digital, both of which filed for bankruptcy earlier this year.
Kirkland commands some of the highest billing rates in the industry, charging up to $1,995 an hour for its partners’ work on the Celsius and Voyager cases, according to court documents. The company, which did not respond to a request for comment, has billed an average of about $3.3 million per month in each of these cases so far.
Law firm billing rates are not normally public, but in the event of bankruptcy, debtor company lawyers must itemize their bills and seek a judge’s approval for their fees.
Lawyers are paid from the assets of a bankruptcy estate and experts have said judges rarely demand significant reductions in professional fees.
“Kirkland already dominates large public company bankruptcies, and that’s only expanding into a new area of bankruptcy,” said Lynn LoPucki, a University of Florida law professor who has studied bankruptcies and corporate restructuring. ‘company. “If they dominate crypto, it will keep them on top.”
Among his most significant recent cases, Kirkland won $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, according to documents filed in court. courts.
Kirkland’s partner Joshua Sussberg is lead counsel in the firm’s three crypto-related bankruptcies. He has been involved in numerous major corporate bankruptcies in recent years, including for the cinema chain Cineworld Group and JC Penney Co Inc.
Wall Street firm Sullivan & Cromwell is FTX’s bankruptcy attorney. The firm has yet to disclose its fees, but in a 2021 case involving Kumtor Gold Company, firm partners charged up to $1,825 per hour.
Sullivan & Cromwell is also representing 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 mount, the law firm with the highest disclosed maximum billing rate to date is Latham & Watkins, which advises Celsius on regulatory matters and serves as debtor attorney for Three Arrows Capital. His highest 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 triggered by the COVID-19 pandemic and big-box retailer struggles have begun to slow, officials said. legal experts. Crises within certain industries, such as cryptocurrency, can keep business flowing and provide years of steady revenue.
Lawyers in crypto cases face a host of new issues in bankruptcy law, including whether digital assets deposited on a platform belong to the client or the platform itself, experts say in bankruptcy law. This determination could help decide how much of their deposit a customer is likely to recover from a bankrupt business.
Levitin, a former member of the restructuring department at law firm Weil, Gotshal, & Manges, said such complex issues require top-notch lawyers.
“Otherwise it just becomes a race where the biggest and most sophisticated creditors grab everything,” he said.
Reporting by Andrew Goudsward in Washington Editing by David Bario and Matthew Lewis
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