FTX2.0 – When lawyers stop working for you

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In a shocking betrayal of trust, we, the creditors of FTX Chapter 11 case, are taking matters into our own hands, embarking on a crusade to expose the unethical and predatory billing practices of the primary law firms involved that are not aligned to maximize creditor recovery.

Sifting through reams of paperwork, we followed the money trail, intent on revealing the greedy feeding frenzy hidden within the opaque fees statements.

Analyzing the data, we uncovered outrageous over-billing, as well as questionable expertise behind the exorbitant numbers.

CREDITORS, it is time to stand up to this brazen abuse: Register on the forum and volunteer your expertise. Stop whining, start building.

Join our efforts as we pull back the curtain on the unscrupulous billing machine that’s exploiting the victims of the FTX bankruptcy.

When lawyers stop working for you, the creditors, a study case.

Diving into the Sullivan & Cromwell Fees Statement.

The relentless warning from some FTX creditors about the abusive billing of the law firms in the FTX bankruptcy led us to start some investigation.

Are these exorbitant fees legit? Or are overpaid lawyers getting greedy on the company’s dime?

FTX turned to elite white-shoe law firm Sullivan & Cromwell for counsel in crisis.

The marble columns and oak-paneled walls of Sullivan & Cromwell’s Manhattan headquarters project stability, trust, and integrity. An apparent refuge for executives in turmoil…

But some creditors assert that S&C saw struggling FTX as a bounty, not a client.

An analysis of Sullivan & Cromwell’s billing in the FTX collapse exposes how the firm games creditors in crisis.

As is common in bankruptcy cases in the US, law firms, like Sullivan & Cromwell bill by the hour. The more hours logged, the bigger the payday.

And the data shows S&C lawyers play this system masterfully.

Bar charts never lie.

The Wolf Guarding the Henhouse: How the 80% Fee Rule Fails.

Let’s set the stage before drawing back the curtain.

Every mystery needs context, each revelation is richer with background.

The court freshly approved the last fees from the law firms.

190M approved, for over 250M requested, with Sullivan & Cromwell accounting for >$90 million for itself.

Tucked away in bankruptcy’s labyrinth of rules lurks a sneaky loophole that enables legal looting: the 80% fee rule.

This system lets law firms raid the estate’s coffers month after month, pocketing the majority of fees before anyone even checks their work.

The court rubber stamps up to 80% of outrageous bills, no questions asked.

Only a tiny sliver is held back for later review.

So firms keep gorging, unfettered by accountability. Until the feeding frenzy is too late to stop.

The rule claims to prevent “draining the estate”. In reality, it facilitates the drain. 

Have you ever tried stopping a tsunami with a bucket? 

Come the final fee application, the damage is done. The carcass picked clean of any meat.

It’s time to close the factory. The 80% rule must end.

Our analysis exposes the ugly truth, including the hidden 20%: our calculations are based on 100% of the amount billed, until May 2023.

Why? Because we must tell the whole story, not the whitewashed version.

Complex Case or Simple Greed? A data-driven outlook.

To reflect expertise from professionals and potentially abused billing in a bar chart, we decided to organize the data this way:

  • Horizontal Axis: This axis represents the expertise of professionals. Lawyers are sorted by experience bucket, from non-legal workers to  0-2y of experience from admission til 20y+ of experience. In other words, from “non-legal workers”, to “Junior”, “Intermediate,” and “Senior”.
  • Vertical Axis: This axis represents the total billed in USD. It reflects the amount of work or billing associated per level of seniority.
  • As a result, Bar Heights: The height of each bar represents the total amount billed for a specific category or variable. These bars are proportional to the amount of billing, meaning taller bars indicate higher billing amounts.

On top of that and in order to avoid any bias, we decided to put in some additional work. We created a rapid peer analysis using:

  • Hertz bankruptcy, handled by White & Case (W&C) law firm,
  • and at a quick glance, we get an idea of Sullivan & Cromwell (SullCrom, or S&C) billing in the freshly bankrupt Silicon Valley Bank (SVB).

It sounds important to note that:

  • Largest law firms: W&C is currently ranking 7th among the largest law firms on the planet while Sullivan & Cromwell barely appears in the top 30. If fame has a price, Hertz creditors should have paid for it. Not FTX ones.
  • Time-sensitivity: The datas are comparing the firsts 7 months in bankruptcy, as the FTX case is still pretty “young”.

Here are a few key elements to keep in mind in order to compare the Hertz and FTX bankruptcies:

  • Scale: Hertz’s bankruptcy involved debt of $18 billion-ish, while FTX’s bankruptcy involves around 10b liabilities.
  • Business type: Hertz is a legacy car rental company, while FTX was a new, digital cryptocurrency exchange. A very different underlying business, full of retail, amateurs, and unorganized creditors.
  • Causes: Hertz filed for bankruptcy due to drop in demand during COVID-19 pandemic. FTX collapse was caused by fraud, leading to liquidity issues and a bankrun from customer withdrawals.
  • Lawyers: Hertz hired White & Case, while FTX hired Sullivan & Cromwell. Both are large corporate law firms, and while S&C is considered more elite generally, White & Case is considered to have more expertise in bankruptcy.
  • Outcomes: While Hertz swiftly restructured and exited bankruptcy within approximately 12 months, FTX’s outcome remains uncertain as the investigation persists. Despite publicly stating intentions to file a plan of reorganization by July 2023, FTX’s lawyers have yet to put forth any such proposal nearly 8 months in. Much ambiguity endures (and as of 7/28/23 Sullivan & Cromwell has not yet filed a plan of reorganization).

Given W&C’s unmatched mastery and sterling reputation in navigating complex bankruptcies, as confirmed by their top-tier rankings among legal analysts, their elevated fees for managing the intricate HERTZ case are warranted.

In contrast, the lesser renown and inferior stature of S&C compared to the preeminent W&C, as evidenced by lower peer rankings, indicates their fees on the labyrinthine FTX bankruptcy should be drastically reduced.

The facts speak for themselves – S&C is simply outmatched and outclassed by W&C in this arena.

Fairness and justice demand their fees align with their second-rate capabilities.

Now, back to our story.

Best law firms for restructuring

Note that for Bankruptcy specific S&C also doesn’t rank highly under specific metrics.

Largest law firms by revenue

W&C is currently ranking 7th among the largest law firms on the planet while Sullivan & Cromwell barely appears in the top 30. If fame has a price, Hertz creditors should have paid for it. Not FTX ones.

Bankruptcy/Restructuring: The Elite (Rankings overview for Departments)

Look how many firms are ahead of S&C (Band 4), and again, look at the position of White & Case in band 2.

Billing Bombshell: Questionable Staffing in the FTX Case.

Hereunder are the visuals and how to interpret these results.

  • Right Skewed: f the bar chart is right skewed, it would imply that the majority of the experienced professionals or expertise buckets have higher amounts billed, while less experienced exhibit lower billing hours. 

=> Pretty logical: The more expertise and experience the team handling the case has, the highest the bill should be.

  • Left Skewed: If the bar chart is left-skewed, it would indicate that the inexperienced professionals or low-expertise buckets have higher billing amounts. 

=> In this case, it might potentially imply abusive billing practices, where some professionals may be overbilling for their actual services.


What the F***!

Buckle up, because our deep dive into the billing data reveals some shocking discoveries that challenged even our most jaded expectations.

With bankruptcy fees, the devil is in the details:

  • Exorbitant totals:
    • After 7 months, Hertz’s top lawyers (>10y and >20y experienced) billed $23M.
    • SullCrom in FTX case? Nearly $40M – 75% higher!
  • Shocking staffing
      • Hertz’s White&Case fee distribution per seniority level looks perfectly skewed to the right. In other words, high experienced lawyers are charging a lot, while low experienced lawyers are in the tail. Clean, and logic.
      • In contrast, SullCrom distribution showcases a very high amount of fees charged from super experienced lawyers BUT surprisingly also juniors.

FTX billing is dominated by fresh grads and non-legal.

Though, experts claim Chapter 11 is complex, requiring senior expertise.

The dominance of fresh graduates in the FTX’s billing hierarchy suggests a different narrative—one of surprising simplicity.

FTX’s estate it seems, is charged predominantly by lawyers lacking substantial experience.

They appear to be learning “crypto” at the expense of creditors.

But that’s not all.

Flying Blind: the Financial Black Hole in the FTX Case?

Monthly operating reports (MOR) offer a rare glimpse behind the bankruptcy curtain.

A crystal ball for the murky present, safeguarding the future.

Yet FTX flouts this transparency tradition, hoarding financial insights hostage like a vigilant dragon guards its coveted gold stash.

While other bankruptcy beasts reveal their scales quickly, FTX remains camouflaged in mystery:

  • Hertz freely shared its first MOR just 2 months after seeking Chapter 11 shelter.
  • Fellow creatures like Purdue Pharma and Boy Scouts also produced initial reports within 1-2 months.
  • But over 8 months have passed since FTX slithered into court, and still no MOR emerges.

This defiant opacity fuels suspicion and disbelief. For MORs illuminate compliance and progress.

Without financial transparency, how can creditors know what lurks in the darkness?

The secrecy suggests something sinister brews behind closed doors.

It’s time FTX’s lawyers release the missing reports.

Shed sunlight where shade breeds distrust. Prove promises have substance.

The future will judge today’s choices.

Show willing feet walk the talk towards transparency. Before doubts become conclusions.

Hourly Billing Gone Wild.

The data exposes S&C’s true colors.

S&C has billed over 75,000 hours on FTX already.

Compare that to Hertz’s case handled efficiently by White & Case – just 50,000 hours at the same stage.

Yet again, experts claim Chapter 11 cases require senior expertise.

So let’s plot the hours billed per seniority level… and same conclusion… Again:

  • FTX billing is dominated by fresh grads and non-lawyers doing simple tasks inefficiently.
  • While Hertz’s hours decline with less experience, as expected.

The implications are clear:

  • FTX billing shows obvious simplicity, not complexity warranting premium fees.
  • Overbilling and padding by inexperienced staff inflates the numbers.

So what are we paying these premium prices for?

Let’s dive deeper into the non-legal bills and break down the dirty details.

Non-legal workers gold-digging.

A closer look at S&C’s staffing on FTX reveals an ugly truth:

  • 33% of fees billed by non-lawyers and junior lawyers.
  • Only 22% from mid-level lawyers.

Compare that to Hertz:

  • Non-lawyers and juniors billed just 15%.
  • Mid-levels billed 39%.

The implications?

FTX is being billed exorbitant fees by inexperienced lawyers, suggesting serious abuse.

In dollar terms, FTX paid $30M to junior and non-legal staff versus Hertz’s $7.5M – for the same period.

A shocking $22.5M difference in just 7 months.

FTX’s non-legal fees alone are 10% higher than peers.

Yet creditors pay premium prices expecting S&C’s best talent. More Bodies, Less Brains.

Instead, non-lawyers and non-elite lawyers are burning cash faster than a Lamborghini.

Is John Ray doing any better? Billing Bonanza.

Think $2,000 SullCrom to plug in a laptop is crazy? That’s just the tip of the iceberg. 

S&C billed nearly $40,000 for ONE DAY of work by 5 admin people. 

But it gets worse if we expand the analysis to John Ray’s team.

Kathryn Schultea, the CEO’s “chief assistant”, charged $6,500 for 8 hours of data entry. That’s over $800 an hour for admin work.

Dear John, do your creditors a favor. Yes, Kathryn’s job is in jeopardy, hence her inflated fees. 

But, dear John, it is time to use Anthropics and hire Claude. 

For that price, Claude could complete a whole college degree in data entry. Maybe even a Ph.D. dissertation titled “Overbilling and Ethics in Bankruptcy Law: A Case Study”.

Kathryn’s monthly non-working travel cost? A mind-blowing $8,775.

Just a reminder that Claude works for free, it doesn’t fly first class or wine and dine at 5-star restaurants. 

Oh and guess what, she charged $193,000 in fees last month alone.

For what exactly? What a billing frenzy while Claude works for free.

These lawyers have no restraint gorging on struggling FTX’s carcass. Creditors are the meal ticket.

But the tales of woe don’t end there.

Another supposed remedy instead brought only fresh frustration – the infamous claims portal.

The disparity is striking – while an entire army of lawyers on the UCC charged only $10,500, we got Shultea, a single assistant who asked for nearly the same amount.

Isnt it obvious that one assistant should not be charging on par with a squadron of professionals?

This vast gulf highlights absurdly excessive fee requests compared to the work delivered.

We are not simply being abused, we are being egregiously exploited.

Reasonable compensation for honest work is acceptable, but using a crisis to line one’s own pockets is unconscionable.

These billing practices cross the line from reasonable fees into systemic abuse of power and trust.

The time has come to demand integrity and ethical standards – anything less is a betrayal of those relied upon for justice.

The claims portal: Amateur work at professional rates.

After months of unanswered cries, FTX’s long-awaited claims portal finally launched.

But creditors found no relief – just insult added to injury.

This creation was destined to simplify, to streamline, to provide clarity from chaos.

A high-tech gift for creditors long denied transparency and voice, to fill their claims.

But reality often deviates from the script.

This supposed lifeline is a botched product riddled with glitches:

  • KYC unfinished.
  • Balances mismatched.
  • Creditors are left confused and frustrated trying to file claims whereas there is no “submit” button.
  • 0 explanation. 220m usd, deal with it!

The portal didn’t satisfy the soul, just sunk it deeper.

Its promise dissolved like mirages in deserts, leaving lost wanderers with no direction home.

And the shoddy claims portal deserves its own blog post to fully expose the amateurish work.

Aggregating the deluge of Twitter complaints would take ages.

But the stories share one theme: the portal is a joke.

A supposed portal to fill claims turned into a portal with no submit button, In other words, a portal to… nowhere.

Creditors pay premium prices but receive defective products.

Stop the madness?

A lack of oversight: Method to madness.

Who’s watching this?

Here’s the kicker – FTX’s court-appointed Fee Examiner signed off on these outlandish fees.

Talked about the fox guarding the henhouse?

Look, the examiner was hand-picked by Sullivan & Cromwell.

In other words, S&C proposed Katherine Stadler as fee examiner. 

And lo and behold, she waves through their exorbitant billing. Despite a quick and simple peers analysis would show that it is way way way way way way too high…

Almost like it was…coordinated?

Instead of appointing objective overseers, the reality is that appointers often pick favorites who will be naturally inclined towards their point of view.

With enablers supposedly “overseeing” the madness looting, who will stop it?

Creditors, you have a voice.
Non-Creditors, we have an offer for you.

FTX clients are relying on the UCC and the court to restore oversight before it’s too late.

United we rise. 

Crypto began as a vision to transform flawed systems.

The future is decentralized.

If we fight together, we can revive FTX and make it a first of its kind exchange.

This is our ecosystem:

  • The future is ours to shape, the clay of destiny molded by our hands.
  • The future rises according to our vision, constructed by our hands.


Comment, share, join the forum, share your expertise, opinions, create value. 

Don’t stay quiet in the dark. 

Stay tuned for our proposal.

Lawyers fees AND broker fees belong to us.

Join us as we bring crypto’s promise back to life, and make FTX2.0, the inevitable decentralized future of FTX.

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10 months ago

interesting, let’s connect on TG or wherever

10 months ago

Sunil K knows who I am, a gold sack of balls

Would love your thoughts, please comment.x
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