By
Bena Ilyas
May 20th, 2024
According to Stark, the FTX reorganization cost a little too much for something that was never going to be possible.
Former United States Securities and Exchange Commission (SEC) official John Reed Stark has said the reorganization plan for defunct crypto exchange FTX was a “highway robbery of highway robbers”. According to Stark, restructuring FTX was never possible, suggesting that the bankruptcy team knew this but profited off the idea.
Stark: Chapter 7 Bankruptcy Was Always Impossible
In a long-form post on X, Stark shared his opinion on the recent announcement that FTX is no longer looking to reopen and that the firm will pursue liquidation (Chapter 7 Bankruptcy). He highlighted a Reuters report explaining that although the exchange had negotiated with potential investors for months, none agreed to invest enough for a reorganization.
Explaining this at a Delaware bankruptcy hearing last month, FTX attorney Andy Dietderich added that “the costs and risks of creating a viable exchange from what Mr. Bankman-Fried left in a dumpster were simply too high.” At the time, FTX had recovered over $7 billion in assets to channel toward customer repayments.
Generally, Chapter 11 bankruptcy is used mainly by businesses looking to continue operations while repaying creditors over time. The Chapter 11 process requires a reorganization or restructuring plan over a specified period. On the other hand, Chapter 7 is used to liquidate assets and use proceeds to pay off debts.
In Stark’s X post, the former SEC official mockingly asked the team to send “thank you notes” to FTX customers. According to him, “each member of the FTX legal bankruptcy team can now probably afford to buy a new beach house in 2024.”
FTX Reorganization Cost Too Much
Stark said he predicted more than a year ago that reorganizing FTX (Chapter 11 Bankruptcy) is impossible. Yet, implying that this was something the bankruptcy team knew, the team kept pretending that the restructuring could work while “laughing all the way to the bank”. Stark continued, stating that according to reports, experts have earned up to $1.5 million per day. He said:
“One law firm handling the FTX bankruptcy will generate so much revenue that even if the firm took no other engagements last year, the firm would still rank among the 200 largest law firms in the US. All those fees to tell us what we already knew – that FTX should be liquidated and not reorganized.”
Between February 1 and April 30, FTX paid more than $121 million in fees for financial, legal, and consulting services. A law firm, Sullivan & Cromwell, received $37.6 million of the monies. This was over 30% of the fees paid in the period. Also, restructuring consultant firm Alvarez and Marsel charged about $37 million, with $149,155 in lodging costs and $51,225 in meals.
Last December, reports revealed that FTX’s legal and advisory fees had reached an average of $53,000 per hour over three months. Between August 1 and October 31 last year, FTX spent a whopping $118.1 million on professional services. This was about $1.3 million daily.
Ending his X post, Stark said the fees the FTX bankruptcy team has spent are exorbitant. He also described the Chapter 11 plan as “pure fantasy”.
“No matter what the FTX customers ultimately get back, the Stark reality is that this was highway robbery of highway robbers,” Stark said.