The legal fees for FTX’s bankruptcy process have already topped $200 million, a cost that is likely to grow, says Sunil Kuvari, a former FTX customer and activist. Kuvari is raising questions about the extraordinary costs of the allegedly fraudulent crypto exchange’s restructuring and recovery of victims’ funds. He has found that the fees are far higher than other complex bankruptcies, both in absolute terms and as a percentage of the underlying assets and liabilities.
Kuvari is spearheading a class-action lawsuit against influencers and celebrities who touted FTX, and has become prominent among creditors. He’s very motivated to scrutinize the bankruptcy spending, as the outsized costs could mean he loses an extra $100,000 or more.
Kuvari has been ringing alarms about bankruptcy costs following a June 20 report by bankruptcy examiner Katherine Stadler, a lawyer tasked with overseeing the expense of the restructuring. Stadler recommended some cost reductions, but largely described the outsized costs as appropriate to the complexity of the situation.
However, Stadler did advocate for better controls in specific aspects of the bankruptcy. She found that the bankruptcy teams were using a higher proportion of senior staff than usual, with associated higher costs. Stadler also pushed teams to reduce the number of people in meetings and attending hearings.
Kuvari contests the idea that FTX’s bankruptcy is more complex than Enron’s. He argues that Enron’s fraud revolved around comparable complexity, and that FTX’s remaining and recovered assets totaled around $7.3 billion as of this month, while Enron’s totaled $110 billion.
Kuvari also points out that Alvarez & Marsal, the management consulting firm responsible for a variety of tasks, is charging much more in the FTX bankruptcy than in the Celsius bankruptcy. He found that A&M are charging FTX $11 million a month, while charging Celsius $1.7 million per month.
The counterpoint is that while Enron covered its tracks cannily, it did at least keep records of those activities. In fact, some of the documents tracking the creation of Enron SPEs played a role in the criminal prosecution of the ringleaders of that fraud.
Ultimately, creditors will want to watch future reports closely to make sure that bankruptcy costs are reined in. Sam Bankman-Fried’s chaotic approach to disposing of his customers’ money has made life harder on those left to clean up his mess, and it’s likely taking one last pound of flesh from FTX’s many victims.