Big Law firms have raked in over $750 million in legal fees from cryptocurrency-related bankruptcies, but this financial boon, spurred by a period marked by scandal and market volatility, is approaching its twilight.
Currently, 22 prominent law firms are engaged in seven Chapter 11 bankruptcy cases resulting from the crypto collapse that began in 2022. As of mid-August, these firms have either billed or requested fees totaling $751 million, based on a Bloomberg Law analysis of court filings.
While it’s challenging to directly compare these figures with other bankruptcy cases, the recent surge in crypto-related filings mirrors past industry-driven spikes in Chapter 11 activity, such as the oil and gas sector’s wave of filings in 2015-2016 or the retail bankruptcies during the COVID-19 pandemic.
The flood of legal fees from the crypto sector is beginning to taper off, with the potential for a complete cessation of billings by the year’s end. Currently, only three of the cases are generating substantial monthly fees for law firms, while four have largely concluded.
The active cases include FTX Ltd., the now-defunct crypto exchange founded by Sam Bankman-Fried, who was recently convicted of related fraud; Genesis Global, another exchange that faltered following FTX’s collapse; and Terraform Labs, which filed for bankruptcy after the TerraUSD stablecoin’s dramatic failure in May 2022.
FTX’s bankruptcy case has a confirmation hearing slated for early October, indicating an imminent resolution to a protracted and contentious case. Terraform Labs’ confirmation hearing is scheduled for September. Genesis has emerged from bankruptcy, with Cleary Gottlieb, the company’s legal counsel, revealing this week that Genesis has disbursed approximately $4 billion in digital assets and cash to its creditors.
In June, the Big Law firms handling these major cases billed roughly $15 million, the most recent month with available data. During peak periods in mid-2023, the combined monthly fees from these cases exceeded $35 million.
Among the crypto-related cases, FTX has been the most financially rewarding for legal firms. It has generated more than $312 million in fees for five law firms, more than twice as much as the next most profitable case, Celsius Network LLC, which paid four firms about $155 million. The Genesis case has brought in around $97 million in fees.
Sullivan & Cromwell has emerged as the highest-billing firm in these crypto cases, largely due to its role as debtor’s counsel for FTX. Through June, the New York-based firm had billed a total of $215 million for its work on this case. The firm’s monthly bills were consistently over $10 million until February, but have since decreased to under $7 million in recent months.
Despite the substantial fees, they are not record-breaking. For comparison, Weil Gotshal & Manges billed more than $480 million over five years for the bankruptcy of Lehman Brothers, which has been noted by the New York Federal Reserve as the costliest Chapter 11 case in US history.
In 2023 alone, Sullivan & Cromwell billed over $138 million in the FTX case, a sum comparable to the revenue of the 190th largest US law firm, according to American Lawyer data. This case accounted for roughly 7.5% of Sullivan & Cromwell’s $1.86 billion in revenue last year.
Kirkland & Ellis, the second-highest billing firm, has invoiced $120 million, despite much of its work concluding earlier this year. The firm secured early roles as lead debtor’s counsel for Celsius, BlockFi, and Voyager, with its most lucrative case being Celsius, which generated more than $75 million in fees.
White & Case ranks third in fees, with just over $75 million, for its roles in the Genesis and Celsius cases. The firm represented Celsius creditors and assisted in investigating the company’s former CEO, Alex Mashinsky, as well as the unsecured creditors committee in Genesis.
Cleary Gottlieb, the fourth-highest billing firm, has earned nearly $73 million, largely for its work as lead counsel in the Genesis case, which is nearing completion and generating about $2.5 million a month for the firm since April.
Although the crypto bankruptcy cases are drawing to a close, Big Law’s bankruptcy practices are expected to remain active.
The first half of 2024 saw 346 corporate bankruptcy filings, the highest number since the first half of 2010, driven by a record surge in June, the busiest month since the pandemic began in 2020.
Even as the crypto bankruptcies wind down, the industry continues to be a significant source of legal work. Ongoing lawsuits by the US Securities and Exchange Commission and the substantial lobbying efforts by crypto companies, which spent nearly $79 million on lobbying in 2022 and 2023, ensure that legal professionals will remain busy in this sector.