Lawyers have reaped substantial financial rewards from the cryptocurrency bankruptcy wave, amassing over $750 million in fees since 2022. The surge in bankruptcies within the crypto industry has proven lucrative for top law firms, with 22 major firms handling seven significant Chapter 11 cases related to the industry’s collapse.
The scale of legal fees in crypto bankruptcies
An analysis of court documents reveals that legal fees related to these bankruptcy cases have reached $751 million. This surge mirrors similar legal fee spikes in other industries during periods of turmoil, such as the oil and gas bankruptcies of 2015-2016 and the retail sector’s shake-ups during the pandemic. However, as the crypto market shows signs of stabilization, the pace of these legal fees is beginning to slow, with expectations that they may taper off by the end of the year. Of the seven cases, only three continue to generate significant fees for the law firms involved.
The big three cases: FTX, genesis, and terraform
Three ongoing cases stand out for their continued generation of substantial legal fees: FTX, Genesis Global, and Terraform Labs. FTX, once a major cryptocurrency exchange, has been at the center of this financial windfall. The case against FTX and its founder, Sam Bankman-Fried, who has been convicted of fraud, has generated over $312 million in legal fees across five law firms.
Genesis Global, another exchange that collapsed after FTX’s downfall, follows with $97 million in fees. Meanwhile, Terraform Labs, linked to the May 2022 collapse of the UST stablecoin, has also been a significant source of revenue for the law firms involved. These three cases accounted for approximately $15 million in legal fees in June alone. During the peak of the crypto turmoil in mid-2023, combined fees from these cases exceeded $35 million per month.
Sullivan & Cromwell: leading the charge
Sullivan & Cromwell, a New York-based law firm, has emerged as the top earner in this wave of crypto bankruptcies. Acting as debtor’s counsel for FTX, the firm has billed $215 million in fees through June. At its peak, the firm was billing over $10 million per month, though recent months have seen this figure dip below $7 million. Despite the substantial earnings from the FTX case, these fees are not record-setting. For example, Weil Gotshal & Manges billed over $480 million for their role in the Lehman Brothers bankruptcy, the most expensive Chapter 11 case in U.S. history.
However, in 2023 alone, Sullivan & Cromwell pulled in $138 million from the FTX case, accounting for 7.5% of the firm’s total revenue last year. Lawsuits from the U.S. Securities and Exchange Commission (SEC) continue, and crypto companies invest heavily in lobbying efforts. These companies have spent nearly $79 million on lobbying in 2022 and 2023 alone. While the wave of crypto bankruptcies may be slowing, the legal work is far from over. With ongoing pressure from the SEC and continued volatility in the crypto market, law firms remain busy, capitalizing on the challenges faced by the industry.