Welcome back to Big Law Business ColumnI’m Roy Strom, and today we’re looking at how much the big law firms made in a series of crypto-related bankruptcies. Sign up to receive this column in your inbox Thursday morning. Programming note: Big Law Business is closed next week. Happy Labor Day.
Major law firms have racked up more than $750 million in legal fees from cryptocurrency-related bankruptcies, but the lucrative work from a scandal-plagued era is slowly approaching the finish line.
A group of 22 major law firms is working on seven Chapter 11 bankruptcies stemming from the crypto impact that began in 2022. They have been paid or requested $751 million in fees through mid-August, according to a Bloomberg Law analysis of court documents.
It’s difficult to put that number in the context of other bankruptcies, but the series of crypto cases is reminiscent of industry-related surges in Chapter 11 bankruptcy filings, such as the wave of oil and gas filings in 2015 and 2016 or the retail restructurings during the pandemic.
Legal fees for crypto matters are starting to decline, and by the end of the year the money tap could be completely turned off. Only three of the cases currently generate high monthly bills for law firms, and four cases are largely closed.
Ongoing cases include: FTX Ltd., the crypto exchange founded by Sam Bankman-Fried, who was convicted of related fraud; Genesis Global, another exchange that collapsed in the wake of FTX’s bankruptcy; and Terraform Labs, the most recent major crypto bankruptcy case that resulted from the implosion of the eponymous stablecoin TerraUSD in May 2022.
In the FTX case, a confirmation hearing is scheduled for early October, signaling the impending end of a lengthy, contentious case. Terraform has a confirmation hearing scheduled for September. Genesis has emerged from bankruptcy, and Cleary Gottlieb, the company’s debt counsel, announced this week that the company has paid about $4 billion in digital assets and cash to creditors.
The major law firms working on these three cases billed a total of around $15 million in June, the last month for which such information is available. During some of the busier months of the crypto fallout, in mid-2023, the cases collectively generated more than $35 million per month.
For the large legal industry, the FTX case generated by far the highest legal fees.
In total, five law firms received more than $312 million. That’s double the amount of the next most lucrative case after the US Chapter 11 proceedings, that of Celsius Network LLC, which brought in around $155 million for four law firms. The Genesis case brought in around $97 million in fees.
Sullivan & Cromwell has billed more than any other law firm involved in the crypto fallout cases, thanks to its work as debt counsel for FTX. The New York-based firm has billed a total of $215 million in the case through June. Until February, the firm was consistently billing more than $10 million per month. Its billings have tapered off somewhat, dropping to less than $7 million in the last two months.
While FTX’s fees are high, they are not historic. Weil Gotshal & Manges billed over $480 million for its five-year work on the Lehman Brothers bankruptcy, which the New York Federal Reserve called the most expensive case under the U.S. Chapter 11 process.
In 2023, Sullivan & Cromwell billed more than $138 million in the FTX case—roughly the same amount of revenue as the 190th-largest U.S. law firm, according to American Lawyer. The case accounted for about 7.5% of the firm’s $1.86 billion in revenue last year.
Kirkland & Ellis billed the second-highest fees of any law firm, at $120 million, despite completing most of its work earlier in the year. The firm won early assignments as lead debt counsel for Celsius, BlockFi and Voyager. Its largest single case was representing Celsius, which brought in more than $75 million in fees.
White & Case charged the third-highest fees, just over $75 million, for its work in the Genesis and Celsius cases. The firm represented Celsius creditors and helped investigate the company’s former CEO, Alex Mashinsky, and represented the committee of unsecured creditors in the Genesis case.
Cleary billed the fourth-highest fees, nearly $73 million, from his work as lead counsel for Genesis, a case that is nearly closed and has been bringing in about $2.5 million a month for the firm since April.
Even if these crypto cases are soon concluded, it can be assumed that the insolvency practice of the large law firms will continue to be very busy in the future.
According to S&P Global Market Intelligence, a total of 346 corporate insolvency proceedings were initiated in the first half of the year, the highest number since the first half of 2010. This was also due to a record increase in June, when more insolvency proceedings were initiated than in any other month since the pandemic in 2020.
Even though crypto bankruptcies will soon be resolved, the industry remains a hotbed of legal work.
The legal proceedings brought by the U.S. Securities and Exchange Commission (SEC) are still ongoing, and crypto companies have become one of the largest lobbying blocs in recent years. According to a report by Social Capital Markets, the industry spent nearly $79 million on lobbying in 2022 and 2023.
Worth your time
About Baker Botts: The Houston-based law firm has had a successful first half of the year, said its chairman Danny David, who added that he was not interested in a merger.
On politics: Major legislative donors are trying to financially support Vice President Kamala Harris by hosting luncheons and receptions for the presidential candidate, reports Tatyana Monnay.
On the subject of insolvency: Houston’s chief bankruptcy judge will oversee a multifaceted testimony from his former colleague David R. Jones regarding Jones’ relationship with a former Jackson Walker attorney, Alex Wolf reports. Meanwhile, the U.S. trustee investigating Jones is eyeing three federal judges and a Kirkland partner to serve as potential expert witnesses in his investigation, James Nani reports.
That’s it for this week! Thanks for reading and please send me Your thoughts, criticisms and tips.