Calling on the FTX Unsecured Creditors’ Committee to Review Fees

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The botched restructuring plan, the portal fiasco that failed to deliver meaningful help, the abusive fees charged by high-priced lawyers learning cryptos at the expense of creditors, and that last answer to the UCC together broke creditors’ trust in the debtor, yet cost the estate exorbitant sums.

As a collective of concerned FTX unsecured creditors, we are extremely troubled by the substantial professional fees draining the bankruptcy estate.

Our independent analysis of all fee applications to date reveals staggering totals exceeding $250 million so far, representing an outsized 3% of assets, dwarfing the average 1.5%+ in comparable mega bankruptcies.

The Court has the authority to review and approve professional fees for reasonableness.

Excessive or duplicative fees may and should be disallowed:

  • Factors considered in determining the reasonableness of fees include time spent, rates charged, necessity of services, value provided, the complexity of case, and comparison to fees in similar cases.
  • Fees must be for actual and necessary services that provide a benefit to the estate.
  • Vague, lump-sum, or unsubstantiated billing makes it difficult for courts to assess reasonableness. But our independent analysis showcases abusive fees.

Relevant precedents exist, including:

  • In re Energy Partners Ltd. – Fees reduced by 25% or over $3 million. The court found excessive partner billing rates and unnecessary document review.
      1. Court stated “The board room is not the proper place to train a lawyer” in reducing fees by $3 million.
      2. Found partners billed at $700+ hourly rates for document review and due diligence work that could have been delegated to junior associates billing at lower rates.
  • In re Indus. Agric. Servs., Inc. – The court denied nearly $2 million in fees to a law firm finding excessive rates, overstaffing, and billing for issues beyond scope.
      1. Court ruled firm’s staffing was “excessive” and included too many high-billing partners for a “relatively small” case.
      2. Found numerous billing entries for issues beyond the approved engagement scope, such as corporate governance matters.
  • In re Armstrong Store Fixtures Corp. – The fees were reduced due to vague and duplicative billing entries. Detailed time entries are required.
      1. Described billing entries as “woefully inadequate”, lacking detail needed to evaluate reasonableness.
      2. Cited “incomprehensible abbreviations” and failure to delineate time spent per task. Required detailed time logs.
  • In re Mirant Corp. – A law firm voluntarily reduced fees by 10% after objections about staff inefficiency and overreliance on partners.
      1. Firm agreed to voluntarily reduce fees after UCC asserted an “inefficient use of associate time” and over-reliance on multiple high-billing partners.
  • In re Dale’s Truck Repair, Inc. -The UCC fees were reduced by over 80% from $90k requested to $18k awarded due to minimal benefit.
      1. Court found UCC’s substantial fee request was disproportionate to a “relatively small recovery” for unsecured creditors.
      2. Reduced fees by 80%, stating UCC did not exercise “billing judgment”.
  • In re Cenargo Int’l, PLC – The fees were reduced by 15% or over $500,000 due to overstaffing and duplication between firms.
      1. Court noted “ample evidence of duplication” between multiple law firms working on case.
      2. Cited “overstaffing” and reduced fees by 15% to address inefficiencies.
  • In re Joan and David Halpern Inc. – The fees were reduced by 20% or $900,000 due to vague, duplicative and excessive billing.
      1. Described billing entries as “vague and cryptic”, lacking sufficient detail to assess reasonableness.
      2. Questioned “the frequent conferencing between multiple attorneys” as excessive and duplicative.
  • In re Mesa Air Group – The firm’s fees were reduced by 40% or $1.2 million due to overstaffing and lack of billing judgment.
      1. Court reduced fees by 40%, citing “blatant overstaffing” and lack of billing judgment.
      2. Noted too many lawyers assigned and excessive intra-office conferences billed.
  • In re Poseidon Pools of America – The fees were reduced 37% or over $130,000 due to improper rates and billing practices.
      1. Court found hourly rates charged were “not justified” based on experience levels and local market rates.
      2. Reduced fees by 37%, stating firm did not provide value commensurate with rates charged.

As a result, we strongly urge the FTX Unsecured Creditors’ Committee (UCC) to undertake an immediate comprehensive review of all fee applications submitted, and formally object to any unreasonable, duplicative or excessive fees, as expressly authorized under Bankruptcy Code Section 1103(c)(5).

Numerous court rulings affirm the UCC’s standing and obligation to object to improper fee applications on behalf of unsecured creditors, including:

  • In re Pacific Ave, LLC, 467 B.R. 868, 870 (Bankr. W.D.N.C. 2012) – Upholding UCC’s fee review authority under Section 1103(c)(5).
  • In re Alert Holdings, Inc., 157 B.R. 753, 757 (Bankr. S.D.N.Y. 1993) – UCC has “inherent standing” to object to fees under Section 1103.
  • In re First Merchs. Acceptance Corp., 1997 WL 873551 (D. Del. 1997) – Section 1103 permits UCC fee application objections.
  • In re Townsends, Inc., 95 B.R. 550, 551 (Bankr. W.D. Mich. 1989) – Authorizing UCC’s fee objection powers under Section 1103(c)(5).

As the sole fiduciary representing unsecured creditors’ interests, the UCC must utilize its court-affirmed powers under Section 1103(c)(5) and relevant precedent to formally review all fee applications and object where egregious abuses are discovered.

Thoroughly analyzing billing records, eliminating duplicative work, and challenging inflated rates will provide vital control over rampant fees. 

Reducing unjustified costs will directly improve creditor recoveries in this case. 

Stay tuned for more content aiming to empower UCC.


Our complete analysis of the lawyer's abuse in the FTX case.


Our complete exposure of the portal fiasco in the FTX case.
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