Eyebrows Raise in Crypto Community Over FTX Legal Team Earnings

Between Aug. 1 and Oct. 31 of 2023, the FTX legal team's billings amounted to at least $118.1 million.

Crypto and the law are still battling it out, and over the weekend, there have been a few interesting updates. John Reed Stark, a former SEC official, expressed his skepticism about the benefits of the FTX restructuring plan for its customers, even pointing out the very large legal fees collected by the bankruptcy team, which Stark sarcastically suggested could afford them beach houses in 2024. Meanwhile, FTX plans to sell its $175 million claim against Genesis Global Capital to recoup losses.

Genesis, facing its own bankruptcy, is looking to liquidate $1.6 billion in crypto assets from Grayscale's trusts to mitigate market volatility impacts. In the NFT space, artists Ryder Ripps and Jeremy Cahen faced a major defeat in a copyright case against Bored Ape Yacht Club's creator, Yuga Labs, resulting in a $9 million damages order for selling unauthorized BAYC NFTs.

Former SEC official John Reed Stark has decided to voice his skepticism about the benefits of the restructuring plan for the defunct crypto exchange FTX’s customers. Stark's comments on X pointed out the very large earnings made by the legal team handling the bankruptcy, suggesting that the financial gains made during the proceedings could afford each team member a new beach house in 2024. His very sarcastic tone certainly underscored the very big disconnect between the legal fees incurred and the interests of FTX's customers.

During a Jan. 31 hearing in the U.S. Bankruptcy Court for the District of Delaware, FTX lawyer Andy Dietderich, representing Sullivan & Cromwell, made it clear that there were no intentions to relaunch FTX, quashing any rumors about a possible comeback under the Chapter 11 bankruptcy framework. This clarification came in the middle of discussions about the feasibility of restructuring FTX, something Stark previously compared to trying to reorganize a combination of “Murder Incorporated, The Cali Drug Cartel and Madoff Investment Advisory Services.”

From November of 2022 to June of 2023, the lawyers and restructuring team at FTX billed over $200 million, a figure that, despite its enormity, was deemed "not wholly unreasonable at the moment" by court-appointed fee examiner Katherine Stadler in a Jun. 20 report. However, the spending spree continued, with FTX shelling out about $53,000 per hour on legal and advisory fees in the quarter ending Oct. 31, 2023. Between Aug. 1 and Oct. 31, 2023, the bankruptcy legal team's billings amounted to at least $118.1 million, averaging an eye watering $1.3 million per day.

In an attempt to manage its assets, FTX filed a request on Feb. 1 in a Delaware court to sell its $175 million claim against Genesis Global Capital, which is owned by Alameda Research. This request, if approved, will allow FTX to sell the claim in whole or in parts, depending on market conditions, offering a potential avenue for recuperating some of its losses.

Genesis Global Capital Seeks Approval to Liquidate $1.6 Billion in Crypto Assets

Bankrupt crypto lending firm Genesis Global Capital sought approval from a United States Bankruptcy Court to sell its holdings in Grayscale's Bitcoin (BTC), Ethereum (ETH), and Ethereum Classic (ETC) trusts, in an effort to liquidate assets valued at about $1.6 billion. This move is driven by Genesis' attempts to mitigate potential losses from market volatility and to increase the amount of funds available for its creditors.

The firm's portfolio is heavily weighted towards Grayscale Bitcoin Trust (GBTC) shares, which constitute around 87% of its total holdings, or $1.38 billion. The Grayscale Ethereum Trust (ETHE) and Grayscale Ethereum Classic Trust (ETCG) account for about 10% and 3% of its portfolio, respectively.

Genesis placed a lot of emphasis on the importance of acting quickly to sell these assets, especially considering the recent transformation of GBTC into a spot Bitcoin exchange-traded fund (ETF), which now permits cash redemptions of shares. This change has led to a notable withdrawal of investors from GBTC, with the bankrupt cryptocurrency exchange FTX offloading 22 million GBTC shares—its entire stake—valued at nearly $1 billion. Despite this, Genesis is committed to achieving the best possible outcome from the sale of these assets.

The company also pointed out that, unlike GBTC, the Ethereum-based trusts do not have a redemption program just yet, and require written consent from the sponsor for any sale. Genesis has requested that this requirement be waived to expedite the liquidation process.

It is important to bear in mind the massive holdings in these trusts, with GBTC owning about 3.2% of all circulating Bitcoin, ETHE holding approximately 2.5% of all circulating Ethereum, and ETCG having around 8.5% of all circulating Ethereum Classic.

Meanwhile, Artists Ryder Ripps and Jeremy Cahen faced a big legal setback in their battle against Bored Ape Yacht Club (BAYC) creator Yuga Labs, as their counterclaims in the lawsuit were dismissed, leading to an order to pay $9 million in various damages. This recent court decision escalates the financial consequences for Ripps and Cahen, who had previously been ordered to pay $1.57 million in damages for creating and selling unauthorized versions of BAYC non fungible tokens (NFTs) under the Ryder Ripps BAYC (RR/BAYC) collection in May of 2022.

The court's order not only includes a steep increase in financial reparations, covering things like lawyer fees, expert witness fees, and disgorgement but also mandates the disposal of any RR/BAYC NFTs owned by Ripps and Cahen. They are instructed to either destroy these NFTs or hand them over to Yuga Labs for destruction. Additionally, the pair is required to relinquish all social media accounts and the smart contract associated with the RR/BAYC NFTs, as well as destroy any infringing materials they possess.

The dispute began when Ripps and Cahen launched the RR/BAYC collection, playing on the popularity of the BAYC brand. Yuga Labs responded with a lawsuit, accusing them of copyright violations, which led to the initial ruling in April of 2023 that favored Yuga Labs. Despite this, Ripps and Cahen attempted to counter with claims alleging emotional distress and seeking a declaratory judgment of no defamation, which the court has now dismissed.

After this latest court decision, Cahen announced their intention to appeal the ruling in the Ninth Circuit Court of California.