Law firms, consultants, and analysts raked in more than $700 million following the implosions of crypto firms FTX, Voyager Digital, Genesis Global, Celsius Network, and BlockFi, reports the New York Times (NYT).

Analysts reportedly combed through more than 5,000 court records and discovered that in the past year, two major law firms, Sullivan & Cromwell (which is handling FTX’s bankruptcy) and Kirkland & Ellis (which is dealing with three collapsed crypto firms) made $110 million and $101 million in fees respectively.

The two firms also charged $500,000 and $2.5 million in expenses.

The rapidly increasing fees may be music to the ears of bankruptcy specialists but have drawn criticism from creditors affected by the firms’ collapses. Understandable, given that money paid to lawyers and other experts comes out of any potential pool of funds to be returned to them.

The fees are “exorbitant and ridiculous,” said 19-year-old investor Daniel Frishberg (via NYT).

Frishberg, who lost $3,000 when Celsius went under last year added, “At every hearing, they have an army of people there, and most of them don’t need to be there. You don’t need 20 people taking notes.”

FTX creditors have also raised concerns about Sullivan & Cromwell’s hourly rates, which touch nearly $600 for paralegals and over $2,000 for partners.

Read more: Mashinsky charged by DoJ, CFTC, SEC, and FTC year on from Celsius bankruptcy

Legal firms, for their part, claim that the high fees reflect the importance of the work they’re doing to return funds to investors. Indeed, Sullivan & Cromwell claims to have recovered $7 billion in assets so far.

However, in a statement, an FTX spokesman cautioned that the lack of explicit crypto laws and regulations make the whole process more complicated and, inevitably, more expensive.

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The US Department of Justice (DoJ) has filed an appeal against a judge’s approval of a bankruptcy plan for Voyager Digital that includes Binance US buying billions of dollars in assets. 

The document was submitted early this morning by the DoJ’s bankruptcy component overseeing New York (US Trustee, Region 2) to the District Court for the Southern District of New York (SDNY).

Details remain unclear, yet further communications in regards to the Voyager appeal could confirm that Binance US is under investigation by the DoJ, as has been suspected by critics. Its parent company Binance has been the subject of a DoJ probe since 2018 for potential US money laundering.

Customers have spent seven months waiting for their funds to be recovered — the crypto brokerage filed for bankruptcy back in July. In the past six weeks, analyst Wu Blockchain estimates Voyager Digital has dumped over $350 million of on-chain assets through Binance US, along with Coinbase and over-the-counter (OTC) desks.

Voyager’s remaining assets are reportedly worth around $760 million, mostly converted into USDC ($488 million), along with:

• about $150 million in ether,
• more than $50 million in its native Voyager token,
• and just over $40 million in SHIB.

The DoJ’s appeal against Voyager’s plan was made early this morning. However, an organized group of creditors had pre-emptively said they would fight back against attempts by the US government to thwart the Binance US plan:

“The [Voyager Official Committee for Unsecured Creditors] will work with the Debtors to oppose any appeal. However, an appeal could significantly delay creditor recoveries,” it wrote on Twitter.

Indeed, affected parties must now wait even longer to hear if a plan will go ahead that puts trapped funds into the hands of a firm suspected of securities violations, and owned by a global exchange accused of facilitating money laundering and evading sanctions, among other glaring issues.

Read more: The deep ties between Binance, Bitzlato, and darknet market Hydra

DoJ’s Voyager appeal filed after SEC concerns dismissed

Voyager Digital put up virtually all of its assets for auction on September 13. Sam Bankman-Fried’s crypto exchange FTX.US had the winning bid — but then it went bankrupt. Voyager’s plan ended up with Binance US acquiring around $1 billion worth in customer assets for $20 million.

However, the deal was opposed by the Securities and Exchange Commission (SEC), the Federal Trade Commission (FTC), and New York regulators in February of this year. The SEC claimed that the plan could violate securities law — Binance US is already under the microscope for the same offence.

According to the agencies, the deal didn’t do enough to alleviate concerns that Binance US execs or “foreign persons or entities” would have access to customer keys. Neither did the bankruptcy deal mention how it would “ensure that customer assets are not transferred off the Binance US platform.” The SEC further noted how the deal potentially relieves Voyager executives of pending fraud claims.

New York Attorney General (NYAG) Letitia James stated Voyager “illegally operated a virtual currency business.” NYAG pointed out that Binance US isn’t allowed to operate in New York — the Voyager plan could potentially harm residents, she argued, since they would need to use the exchange to access funds.

Read more: Texas tries to block Voyager sale, reveals FTX investigation

The Texas State Securities Board and Texas Department of Banking chimed in with their own objections. They stated the plan didn’t adequately detail the terms of the acquisition, and raised concerns that Binance US hadn’t done enough to show that it operates independently of Binance — as of August 19, 2021, Binance chief Changpeng Zhao owned 90% of Binance US equity.

Voyager asked users to vote on the company’s chapter 11 plan at the start of March. Results showed 97% of customers were in favor of Binance.US acquiring assets and faciliating the recovery of assets. The firms say that around 73% of customer funds can be returned following their plan.

It was given the green light on March 6, after four days of debate in court. US bankruptcy judge Michael Wiles rejected arguments made by US regulators against the deal, stating: “I cannot put the entire case into indeterminate deep freeze while regulators figure out whether they believe there are problems with the transaction and plan.”

It remains to be seen if that same sense of urgency will be applied to the DoJ’s Voyager appeal.

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In July 2022, Voyager Digital filed for Chapter 11 bankruptcy, and for more than seven months, its customers have been fighting to get their money back. Soon, Binance could emerge as the winning suitor.

Recently, Voyager Digital users voted in favor of a bankruptcy plan that would see Binance as the acquirer of approximately $1 billion worth of customer assets. Voyager Digital claims 97% of voting customers approved the plan.

The deal could be finalized as early as April 18 and if it closes, Voyager Digital’s customer assets will be transferred to Binance. They will then be able to sign into Binance and withdraw.

Binance, of course, hopes that a meaningful percentage of those customers will decide to stay and trade on its platform. It views the Voyager Digital acquisition as a cost of acquiring a large cohort of customers.

Leticia Sanchez, a director of bankruptcy management firm Stretto, filed the voting results with the United States Bankruptcy Court for the Southern District of New York.

Meanwhile, regulators in a dozen states have decided not to pursue civil claims until Voyager Digital’s customers receive payment. Regulators say Voyager Digital may owe nearly $61 billion in fines for offering unregistered securities to its constituents.

FTX now obviously out of the question

Voyager Digital had been searching for a buyer for its assets since it filed for bankruptcy in July. FTX previously entered a bid to acquire its assets, however, that deal fell through when FTX and Alameda Research spectacularly nosedived into bankruptcy in November.

After FTX and Alameda filed for bankruptcy, Alameda attempted to claw back up to $446 million in loan payments that it had made to Voyager Digital. Predictably, Voyager Digital shareholders objected to that move, saying it could leave them open to a $75 million unsecured claim.

Some wanted Sam Bankman-Fried (SBF) to testify. Many wanted an explanation as to how he could want hundreds of millions of dollars back from Voyager’s customers after stealing billions of dollars from FTX customers. SBF’s lawyers, however, objected to a subpoena to testify in the Voyager Digital bankruptcy case, saying that he’s facing enough fraud charges related to the FTX and Alameda Research bankruptcies. Indeed, SBF faces life in prison and total bankruptcy, depending on the outcome of his existing civil and criminal lawsuits.

Read more: Sam Bankman-Fried charged with more fraud

Binance to Voyager Digital’s rescue

After the FTX acquisition deal fell through, Voyager Digital worked out another deal with Binance.US and its parent conglomerate, Binance. As of August 19, 2021, Binance CEO Changpeng Zhao owned 90% of the Binance.US equity.

• The SEC, FTC, and a financial regulator in New York quickly filed objections and regulators alleged that Binance.US failed to demonstrate how it would protect customer assets.
• The regulators also noted how the deal might have improperly released Voyager Digital executives from pending fraud claims.
• Furthermore, New York says Binance is not authorized to operate in the state. In the opinion of the state’s financial regulator, Binance.US’ acquisition could harm Voyager Digital customers who reside in New York. The deal would force New York residents to liquidate crypto holdings on the platform.
• In addition, the Texas State Securities Board and Texas Department of Banking filed their own objections. They say Binance.US failed to file adequate disclosures about the terms of the acquisition. The Texan regulators also say Binance.US failed to show that the company operates legitimately and independently of Binance, the parent company.

In any case, Voyager Digital customers have voted to move forward with a proposed bankruptcy plan for Voyager in favor of Binance’s offer. Bankruptcy manager Stretto has filed the voting results with a bankruptcy court in New York. Customers await further proceedings in the court and the finalization of any terms prior to the tentative closing date of April 18.

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Sam Bankman-Fried’s Alameda Research is preparing to hand back $200 million in borrowed crypto to Voyager Digital after a New York court ruled in the bankrupt lender’s favor.

Alameda is set to hand back more than 6,500 bitcoins and 50,000 ether by the end of this month, according to a recent filing. In return, Voyager will hand back Alameda’s loan collateral, comprising 4.65 million FTT (FTX’s native token) and nearly 64 million Serum tokens (SRM). This comes to a combined total of just under $160 million.

Voyager had requested that the loan be repaid as it seeks to settle outstanding loans of more than $1 billion with over 100,000 creditors. The company filed for Chapter 11 bankruptcy in July and is said to be in the process of auctioning off assets.

A New York judge has previously given Voyager the go-ahead — albeit reluctantly — to settle a $76,000 balance on 24 company credit cards.

And the troubled company has also promised to hand back as much of its users’ funds as it can, however, it stresses that the exact amounts to be returned will depend on how much it can claw back from its own creditors, chiefly collapsed hedge fund Three Arrows Capital (3AC).

Read more: Here’s why Sam Bankman-Fried is not the JP Morgan of crypto

Alameda owed Voyager much more than we thought

The question of exactly how much money Alameda owed Voyager has been shrouded in confusion.

SBF’s firm reportedly owed Voyager $370 million. However, according to court documents made public in August, it actually borrowed somewhere in the region of $1.6 billion.

This new figure became clear when it was discovered in Voyager’s December 2021 financials that the loan was made to an entity in the British Virgin Islands. Though not explicitly mentioned, it turns out that Alameda is the only counterparty registered there.

For more informed news, follow us on Twitter and Google News or listen to our investigative podcast Innovated: Blockchain City.

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Creditors of bankrupt crypto lender Voyager Digital say the company should be looking to slash its workforce rather than pay its employees “retention awards,” according to a motion filed in a New York court.

The Official Committee of Unsecured Creditors of Voyager Digital says that it “vehemently opposes” the company’s plan to use $1.9 million of its funds to pay 38 workers to not seek alternative employment.

Voyager’s legal team claims that, due to the recent market downturn, employee stocks are next to useless and it must therefore use a cash-based scheme to keep them onboard and avoid a mass exodus that could compromise the firm’s restructuring process.

But the Committee disagrees and argues that the company should instead be looking to slash its workforce

“At a time when thousands of creditors struggle to pay basic personal expenses due to the Debtors’ flawed business model, the Debtors now seek to pay bonuses to their already well-compensated employees,” said the filing.

“And despite customer heartaches, many of which are set forth in dozens of letters filed on the docket, the Debtors have taken no measures to reduce headcount. This stands in stark contrast to how some of the most prominent cryptocurrency companies have reacted since the start of the crypto winter.”

Read more: New York judge reluctantly allows Voyager to settle credit card bills

The Committee also points out that, due to the healthy state of the crypto job market, replacing lost employees shouldn’t be too big a task.

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A new lawsuit claims Mark Cuban played a pivotal role in shilling now-defunct Voyager Digital’s unregistered securities, duping investors in a ‘Ponzi scheme’ that lost them billions.

Voyager was “as close to risk free as you’re gonna get in the crypto universe,” according to Cuban, who campaigned hard to drive traffic to the crypto lender’s platform. The billionaire’s own basketball team, the Dallas Mavericks, even offered $100 in bitcoin to those who download the app and deposit $100 of their own cash.

Only, Voyager went bankrupt in June. Investors want answers.

In a proposed securities class action filed on Wednesday, a host of plaintiffs say Voyager Digital chief Stephen Ehrlich and Cuban facilitated and furthered the firm’s “false and misleading promises of reaping large profits in the cryptocurrency market.”

It claims Voyager’s Earn Program Accounts, or EPAs, were unregistered securities the company continued to flog even after seven states banned its sale. Cuban and Ehrlich repeatedly made inflated and false statements about the safety associated with investing in Voyager in order to avoid bankruptcy, according to plaintiffs.

• Cuban persistently touted Voyager as safe, even admitting he had his own money invested.
• Cuban allegedly failed to disclose the nature or scope of compensation he and the Dallas Mavericks received for shilling the platform.
• In October, the Mavs and Voyager signed a five-year deal which included naming the basketball team’s Mavs Gaming Hub, the venue for their NBA 2K League team.

Read more: How billionaire Mark Cuban got revenge on DeFi with KlimaDAO

The lawsuit further accuses Ehrlich of inflating Voyager’s insurance status. He told investors their assets were “as safe as if they were in a bank” — leading the public to believe they were insured by the Federal Deposit Insurance Corp. (FDIC), just like a bank. When the FDIC and Federal Reserve board caught wind of the false claims, they ordered Voyager to stop making “false of misleading statements.”

Plaintiffs are pursuing charges for aiding and abetting fraud, aiding and abetting breach of fiduciary duty, civil conspiracy, unjust enrichment and violations of several state securities and business laws, and more. 

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New court documents suggest Sam Bankman-Fried’s Alameda Research had much closer ties to now-defunct crypto lending platform Voyager Digital than previously thought, CNBC reports.

Trading outfit Alameda reportedly owed Voyager $370 million. Yet during bankruptcy court proceedings, documents appear to show that SBF’s firm borrowed much more, to the tune of $1.6 billion.

Voyager’s December 2021 financial books reveal the loan was made to an entity in the British Virgin Islands — Alameda is the only counterparty registered there, according to CNBC. The documents, made public thanks to Voyager’s stock trading in Canada before its bankruptcy, reveal the crypto asset loan had rates from 1% to 11%.

Three months later, in March 2022, loan balances dropped to $728 million, then to $377 million in June.

When it went bust, SBF’s firm and FTX jointly offered a $500 million bailout, comprised of $200 million in fiat and USDC as well as $300 million in bitcoin at the time. However, the deal stipulated Voyager could only cash out $75 million over the course of a month.

Read more: How Sam Bankman-Fried became crypto’s curliest billionaire in 4 years

Alameda avoided regulators by shedding stake in Voyager 

SBF was already the majority stakeholder in Voyager to the tune of 11.56%, acquired for $110 million over two investments. When the deal was offered, he took to Twitter in a way that Voyager’s lawyers have described as trying to create leverage for the deal.

Joshua Sussberg, an attorney part of Voyager’s legal team, told the court SBF “wore many hats” during the lender’s rise and fall to bankruptcy. Speaking of the Alameda chief:

“Parties in our process have expressly made concerns aware to us that FTX has a leg up and is working behind the scenes to force its way,” he said. “I want to assure all parties, the court and our customers, that we will not stand for that.”

On the day the $500 million bailout was complete — when Alameda’s $110 million investment was worth about $17 million — it shed 4.5 million shares to avoid having to report it to Canadian securities regulators.

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Voyager Digital says it received a number of buyout offers better than the high-profile bid from Sam Bankman-Fried’s AlamedaFTX, despite what the Bahamas-based exchange told the press.

The lender said in a Second Day Hearing Presentation on Thursday that it has been in contact with 88 potential suitors and that it’s in “active discussions” with 20 prospective buyers.

Last month, SBF and FTX offered to buy up all of Voyager’s assets and loans (bar those relating to now-bankrupt Three Arrows Capital).

However, the takeover attempt was swiftly rejected and the offer was branded “a low ball bid” that could “create chaos” in the firm’s ongoing bankruptcy proceedings.

FTX also made a number of what Voyager has labelled “misleading or outright false” claims related to the potential takeover, including that it would “write off” its own $75 million loan to increase customer recoveries.

These claims were made in a press release issued by FTX wherein it detailed plans to offer early liquidity to Voyager customers.

The troubled lender was quick to shoot down these assertions and to quell speculation that, due to the two organizations’ previous relationship, FTX would have the “inside track” on any potential deal, saying: “Voyager’s process will not be obstructed by anyone, including Alameda/FTX.”

Voyager customers to get $270 million windfall

Meanwhile, Voyager has also been cleared by a court in New York to hand $270 million back to customers.

As reported by the Wall Street Journal (WSJ), Judge Michael Wiles of the US Bankruptcy Court in New York, agreed with the firm’s contention that customers be given access to funds held at Metropolitan Commercial Bank.

The bank held $270 million on behalf of Voyager when it filed for bankruptcy.

Read more: New York judge reluctantly allows Voyager to settle credit card bills

Voyager had previously asked the bank for permission to honor requests from customers to withdraw the funds, but it said the future of the roughly $1.3 billion should be decided through the bankruptcy proceeding.

This latest ruling comes just weeks after the same judge reluctantly allowed Voyager to settle a $76,000 balance on its company credit cards.

The company claimed the cards are essential to its business operations, specifically providing payments to vendors that only take credit card transactions. It also said it needed the cards to pay state licensing and tax obligations.

However, Judge Wiles was unsure why the company needed cards at all and questioned why it hadn’t considered accounts from providers not concerned with outstanding balances.

“I’m concerned that we’re still at a point in the case where I’m only supposed to do things to prevent immediate and irreparable harm,” he said (our emphasis).

“Without you having even made an effort to secure new cards, all I have are vague and generalized descriptions of why you need credit cards generally, not why you need these particular cards or need to pay these amounts.”

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A New York judge has reluctantly allowed bankrupt crypto lender Voyager Digital Holdings to settle a $76,000 balance on its company credit cards but questioned why the company didn’t seek alternative sources of credit.

As reported by Law360, the troubled lender was told on Tuesday that it was okay to pay the pre-petition balances on 24 cards issued by San Francisco-based Brex Inc. The judge’s decision comes barely two weeks after Voyager filed for Chapter 11 protection.

At a virtual hearing, the company’s attorney argued that the cards are an essential part of its business operations due to it providing payments to vendors that only take credit card transactions.

Voyager also argued that it needed the cards to pay various state licensing and tax obligations.

However, despite these reasons, Judge Michael E. Wiles said he had “great misgivings” about approving Voyager’s motion.

The judge not only wanted to know why Voyager hadn’t considered other credit card accounts from providers not concerned with outstanding account balances but said he was unsure as to why Voyager needed cards at all.

“I’m concerned that we’re still at a point in the case where I’m only supposed to do things to prevent immediate and irreperable harm,” he said.

“Without you having even made an effort to secure new cards, all I have are vague and generalized descriptions of why you need credit cards generally, not why you need these particular cards or need to pay these amounts,” (our emphasis).

Voyager still owed $650 million by 3AC

However, Voyager’s legal team claimed that the company’s existing relationship with Brex meant that paying the balances and continuing to use the cards was quicker and easier than moving to a new provider and would cause the least amount of disruption to its business.

Voyager’s attorney also argued that it may be difficult to find a new provider due to the company’s bankruptcy and the uncertainty surrounding its future.

When granting the motion, Judge Wiles added: “I am tempted to say no just because the motion doesn’t come close to satisfying the standard in many respects.”

“In the future, I expect a more clear showing before I authorize something like this. In the absence of objections, I’ll approve this but with great misgivings,” (our emphasis).

Read more: Voyager says customers will get their crypto when 3AC settles debts

Earlier this month, Voyager said that it was embarking on “a voluntary restructuring process” after Singapore-based crypto hedge fund Three Arrows Capital (3AC) collapsed owing the firm $650 million in bitcoin and USDC.

Voyager said that it was planning to restore access to all USD deposits on the platform but that the amount of crypto handed back to users would depend largely on how much it manages to recover from 3AC.

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Toronto-based Voyager Digital has filed for Chapter 11 bankruptcy protection to halt a “run on the bank.” CEO Stephen Ehrlich estimates that the company owes money to a stunning 100,000 creditors.

Typifying the irrational exuberance of crypto investors, the firm’s equity (USD$49 million market cap) is trading lower than its crypto token VGX ($59 million market cap). 

VGX is subordinate to equity, confers no voting rights, and enjoys no investor nor consumer protection oversight. Instead, VGX is a “loyalty and rewards program” that allows token holders to earn “referral bonuses, lower transaction fees, prioritized customer support, higher PIK Interest rates, and access to special events and investment opportunities.”

Bankrupt crypto hedge fund Three Arrows Capital (3AC) owes more than $650 million to Voyager, Ehrlich signed in a Notice of Default. 3AC is in court-ordered liquidation in the British Virgin Islands and filed for Chapter 15 protection in New York bankruptcy court on Friday (non-US companies use Chapter 15 to stay creditors amid court proceedings abroad).

Voyager’s intimacy with Alameda Research

When the news of Voyager’s bankruptcy first broke, most publications simply reported a line item of its unsecured loan of $75 million owed to Alameda Research. That factoid mischaracterizes financial reality.

In fact, Alameda owns 9.49% of Voyager’s equity, aligning founder Sam Bankman-Fried’s interests with certain shareholders during bankruptcy proceedings. More importantly, Alameda actually owes the firm $376.7 million. Allegations of complex financial relationships led to rumors that Sam Bankman-Fried might lose no money due to Voyager’s collapse.

In summary:

• Alameda Research loaned $75 million to Voyager.
• Confusingly, Alameda is simultaneously Voyager’s second-largest debtor (second to 3AC), owing $376 million to Voyager.
• Alameda also owns 9.5% of Voyager’s equity.

False advertising led to severe customer harm

Billions of dollars of Voyager’s customer deposits are frozen pending the outcome of bankruptcy proceedings. Bloomberg columnist Matt Levine estimates that customers might only receive pennies on the dollar after it’s all finalized.

Some customers are considering calling their bank to reverse their automated clearing house (ACH) deposit into Voyager on the basis of a fraud claim.

Read more: How Sam Bankman-Fried became crypto’s curliest billionaire in 4 years

Voyager’s marketing led customers to believe FDIC insurance would protect their assets in the case of the company collapsing — the fine print shows that to be incorrect.

Late Wednesday afternoon, the Toronto Stock Exchange halted trading of its stock at approximately $0.27 per share. OTC Markets has also halted its US listing.

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