Is FTX Paying Attorneys to Restart Defunct Crypto Exchange?

The legal firm representing FTX is billing to revive the now-defunct crypto exchange.

Indeed, the payment of FTX's legal fees indicates a movement towards reviving the exchange.

A counsel for FTX at Sullivan & Cromwell, Andrew Dietderich, told US bankruptcy judge John Dorsey that the corporation is still in the early stages of evaluating whether to bring back the exchange, which allowed consumers to trade digital assets before FTX crashed.

The business may consider other options, such as seeking funding for a relaunch or abandoning the idea altogether.

"There are as many opinions on this as there are professionals in this case, and that's a lot," said Dietderich.

Dietderich testified that the first FTX trading software was a "facade" more akin to a video game than a legitimate, professionally operating exchange.

He stated that FTX might use some of the US$7.3 billion in cash, cryptos, and other assets it has accumulated to revive the exchange or seek investment from other parties.

That sum is being kept until FTX receives final court permission for a creditor distribution plan, which Dietderich predicts won't happen until early in the new year.

According to him, the corporation has discussed resuming the exchange with the official committee of unsecured creditors.

The firm has requested more time to establish a distribution strategy for its creditors.

Dorsey has given the firm until September 7 to provide the proposal. Creditors would then be at liberty to submit their own alternative proposal.

Attorney Fee Suggests Revival

If the monthly fee statements provided by Sullivan & Cromwell, FTX's legal team, is anything to go by, the attorneys have been investigating the tax implications of a possible relaunch of FTX and conducting cybersecurity risk assessments and user experience testing.

For February, they racked up a bill of US$13.5 million, doing everything from tracking for missing billions to working with authorities to weighing "long-term options" for the currency swap.

A fee was charged to "evaluate the potential tax consequences of reestablishing the exchange, including under US tax law."

Other responsibilities for February included communicating through email with FTX's new CEO, John J. Ray III, and other advisors on the "creation of mock-up exchange to test user experience."

In January, FTX's Ray III told the Wall Street Journal that the business is considering relaunching FTX.com, its primary international exchange, to repay debts and win back clients.

After decades of guiding firms through bankruptcy, including Enron Corp., any attempt comes after Ray described it as the biggest breakdown of corporate governance he has ever seen.

The market crash had far-reaching effects and left creditors with at least US$11.6 billion in claims. Restarting under those conditions is difficult.

Daniel Tramel Stabile, a partner at Winston & Strawn LLP who isn't participating in the FTX relaunch endeavour but does co-lead the firm's digital assets group said, "With the compliance and risk-management deficiency, building an exchange is extremely challenging."

To that end, Ray will do everything it takes to maximise value for creditors, including considering whether or not reviving the exchange is better than liquidating its holdings, added Stabile.

Lots of Questions Still Remain

The future of the FTX exchange and whether or not it will be reopened under the new management is still being determined.

It is also unclear if Sam Bankman-Fried, the former head of the company, is just restarting operations so that withdrawals may be processed or whether he is actively trying to rebuild the firm in preparation for his trial in October on fraud and campaign finance legislation charges.

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