The Tribune

FTX’s Bahamian liquidators are hoping the legal fees “run rate” drops sharply due to the settlement with their US counterpart after incurring an estimated $56m total bill during their first 15 months of work.

The just-released minutes of the first creditors meeting for FTX Digital Markets, the collapsed crypto exchange’s Bahamian subsidiary, revealed that legal and professional fees for the three months to end-January 2024 were likely to total $9.3m.

When added to the $46.7m in fees incurred during the liquidation’s first 12 months, which have already been approved by the Supreme Court, those generated for the three-month period from November 1, 2023, onwards will take the total cost to $56m if accurate and accepted by the judge.

“An update was provided on the amount of court-approved professional fees to date in the estate. In total, the court has approved $46.7m covering the period from the commencement of the provisional liquidation to October 31, 2023,” the minutes said. “The chairman estimated that time costs for legal and professional fees for the period 1 November, 2023, to 31 January, 2024, will be in the region of $9.3m.

“It is hoped that the run rate of US legal fees is reduced considerably following the conclusion of the adversary proceeding per the global settlement agreement, although it was noted that it will be necessary to focus resources on the development of the claims adjudication and KYC portal in order to meet the requirements of the settlement to synchronise the claims process for FTX Digital Markets with that for the Chapter 11 debtors.”

The meeting’s chairman was Peter Greaves, who with his fellow PricewaterhouseCoopers (PwC) accountant and partner, Kevin Cambridge, and Brian Simms KC, the Lennox Paton senior partner, form the liquidator trip overseeing FTX Digital Markets wind-up.

A significant portion of the combined $56m in legal and professional fees will have been earned by FTX Digital Markets’ US attorneys, White & Case, who have had to defend the Bahamian liquidators against frequent attacks and legal filings by John Ray, head of the 134 FTX entities currently in Chapter 11 bankruptcy protection in Delaware.

The hope is that US legal fees will be much reduced now that the Bahamian trio have worked out a settlement agreement with Mr Ray that will ultimately see both liquidation estates combine recovered assets in one pool so that they can be returned their rightful owners - former FTX clients, investors and vendors.

The $56m figure also pales in comparison to the more than $300m bill incurred by Mr Ray’s team and legal advisers. In FTX Digital Markets’ case, PwC is thought to have employed a large multi-jurisdictional team spanning the entire globe to unravel the complexities of the crypto exchange’s collapse, with the Supreme Court acting as a check against runaway costs that dilute the value of creditor recoveries.

Now that hostilities with Mr Ray have ended, the Bahamian liquidators can now focus on processing creditor claims, adjudicating and vetting these submissions to make sure they are legitimate and accurate, and then returning assets to ex-FTX clients.

The meeting minutes reveal that the deadline for FTX Digital Markets creditors to submit those claims is likely to be pushed back by at least a month from the original May 15, 2024, target, but both the Bahamian liquidators and Mr Ray are aiming to make the first distribution of assets before year-end 2024.

“The global settlement agreement allows for customers to choose in which liquidation process they wish to claim [The Bahamas or Mr Ray’s in the US], but they can only ever receive a distribution from one,” the meeting minutes said. “Customers will have to elect which process to participate in when submitting a claim.

“The provisional deadline for claim submission and election was set for 15 May, 2024, by the global settlement agreement, but it is now expected to be extended to at least June 2024 based on recent developments.

“The claims portal is accepting claims. All creditors are able to register an account, link their claims account to their FTX.com account, accept or dispute their account balance, have their claim adjudicated, and complete the KYC (Know Your Customer) and AML (anti-money laundering) processes.”

The meeting minutes revealed creditors were informed their account balances, and thus sums due to them, will be based on their valuations as at November 11, 2022, which is when FTX collapsed into Supreme Court-supervised liquidation in The Bahamas and Chapter 11 bankruptcy protection in the US.

The liquidators conceded this was “a departure from the claim value reference date under Bahamian law”, but explained: “To harmonise processes and to avoid complexity between the Chapter 11 debtor estate and the FTX Digital estate, the court approved the use of 11 November, 2022, as the claim reference date.”

FTX Digital Markets’ claims portal went live on March 1, and the meeting minutes added: “The joint official liquidators and the Chapter 11 debtors have a shared goal to make the first interim distribution by the end of 2024 to creditors with admitted claims and satisfactory KYC documentation...

“The joint official liquidators will focus now on claims submissions, adjudications and reconciliation of claims between the FTX Digital Markets and the Chapter 11 debtor estates, as well as settle the opt-in election process and monetisation of assets to maximise and accelerate distributions.”