The bankruptcy of BlockFi Inc., a cryptocurrency exchange that collapsed after the FTX debacle last year, has resulted in a windfall for four Big Law firms that represented the company in its Chapter 11 case. The firms are set to receive $40 million in fees for their work on the liquidation plan, which was approved by the court in October.
According to Bloomberg, Kirkland & Ellis, the lead counsel for BlockFi, has requested a final fee of more than $16 million in a filing on Friday. Haynes Boone, another firm representing BlockFi since its filing in November 2022, has requested more than $12.5 million in fees. Brown Rudnick and Cole Schotz, two other firms working on the case, have requested more than $10.5 million and nearly $1 million in fees, respectively.
The BlockFi bankruptcy was one of many crypto exchange failures that have kept Big Law firms busy this year. Kirkland also represented Celsius Network LLC and Voyager Digital Holdings Inc., two other major crypto exchanges that filed for Chapter 11. Sullivan & Cromwell represented FTX Trading Ltd., the crypto exchange that triggered the downfall of BlockFi and others.
The Role Of Kirkland & Ellis In The BlockFi Case
One of the main tasks of Kirkland & Ellis in the BlockFi case was to investigate whether the company’s estate had any claims against its insiders, such as its founders, directors, and officers. In July, the firm released a report recommending settling these claims in exchange for cash and cooperation from the insiders.
The report also suggested that BlockFi had potential causes of action against FTX and Three Arrows Capital, a hedge fund involved in the FTX implosion. BlockFi blamed these entities for its demise, claiming they manipulated the crypto market and caused a massive margin call that wiped out its assets.
In October, an agreement was reached by BlockFi to participate in mediation with FTX to address the dispute regarding an alleged debt of over $1 billion, as per Bloomberg’s report. The details of the mediation outcome are still unknown.
The Challenges And Controversies Of The BlockFi Liquidation Plan
BlockFi’s liquidation plan faced several challenges and controversies during the bankruptcy process. The US Justice Department’s bankruptcy watchdog objected to the plan, arguing that it did not provide enough information or protection for the creditors and the public interest.
The watchdog also raised concerns about the legal releases that BlockFi sought to grant to its insiders and other parties, such as FTX and Three Arrows Capital. The watchdog claimed these releases were too broad and could shield the parties from liability for fraud, negligence, or other misconduct.
However, the judge overruled the watchdog’s objections and approved the plan, finding it fair and feasible. The judge also noted that the creditors had overwhelmingly voted in favor of the plan and that the releases were necessary to facilitate the liquidation and maximize the recovery for the estate.
The plan provides for the distribution of about $200 million to the creditors, who are expected to receive between 10% and 20% of their claims. The plan also allows for additional recoveries from litigation or mediation with FTX and other parties.
The BlockFi bankruptcy is a cautionary tale for the crypto industry, which is still largely unregulated and volatile. It also shows how Big Law firms can profit from the complex and contentious cases that arise from the crypto space.
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