So, it turns out lawyers are cashing in big on crypto chaos. Over $750 million has flowed into the pockets of top law firms from a wave of cryptocurrency-related bankruptcies that kicked off back in 2022.
According to an analysis of court documents, 22 major law firms have been handling seven Chapter 11 bankruptcy cases linked to the crypto meltdown. And as of press time, they have racked up fees reaching $751 million.
The surge in legal bills mirrors previous spikes, like the oil and gas bankruptcies in 2015 and 2016, or the retail shake-ups during the pandemic. However, with the crypto market stabilizing, the legal fees are slowing down, and by the end of the year, they might dry up completely.
Out of the seven cases, only three are still racking up big bills for the law firms; the rest are pretty much wrapped up.
The big three: FTX, Genesis, and Terraform
Among the ongoing cases, three are still raking in serious money: FTX and its founder Sam Bankman-Fried who have since been convicted of fraud; Genesis Global, another exchange that went under after FTX’s collapse; then we have Terraform Labs and the May 2022 collapse of its UST stablecoin.
Genesis reportedly managed to return around $4 billion in digital assets and cash to creditors. In June, these three cases alone generated roughly $15 million in legal fees, the latest available data shows.
Back in mid-2023, during the height of the crypto turmoil, the combined fees from these cases topped $35 million a month. However, FTX has been the real goldmine. It generated more than $312 million in fees spread across five law firms.
That’s more than double the second-highest earner, Celsius Network, which shelled out around $155 million to four firms. Genesis’s case follows, with about $97 million in legal fees.
Sullivan & Cromwell has billed more than any other firm involved in these cases, thanks largely to their role as debtor’s counsel for FTX. The New York-based firm has racked up $215 million in fees through June.
At their peak, they were billing over $10 million a month, although recent months have seen those numbers dip below $7 million.
While the FTX legal fees are high, they’re not setting any records. Weil Gotshal & Manges, for example, billed over $480 million for their role in the Lehman Brothers bankruptcy, considered the most expensive Chapter 11 case in U.S. history.
Still, in 2023 alone, Sullivan & Cromwell pulled in $138 million from the FTX case, a figure on par with the revenue of the 190th largest U.S. law firm, according to American Lawyer data. This case alone accounted for about 7.5% of the firm’s $1.86 billion revenue last year.
Meanwhile, lawsuits from the U.S. Securities and Exchange Commission (SEC) are still ongoing, and crypto companies are pouring money into lobbying. They’ve spent nearly $79 million on lobbying efforts in 2022 and 2023 alone.
So, while the crypto bankruptcy gravy train may be slowing down, there’s still plenty of work to be done. And with the SEC keeping the pressure on and the crypto market as volatile as ever, the lawyers won’t be out of a job anytime soon.
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