As FTX's bankruptcy reorganization progresses, the increasing legal costs have attracted huge attention.

According to documents filed by FTX advisors on June 15, FTX's expenses totaled $121.8 million between February 1 and April 30, including various expenses such as legal, consulting and financial services fees.

Among them, Sullivan & Cromwell law firm charged $37.6 million in fees, accounting for 30.9% of total fees and expenses; investment bank Jefferies charged the lowest fee, just over $700,000, accounting for 0.6% of total fees and expenses; Alvarez and Marsel's restructuring consultants charged $37 million, of which $1.1 million was in expenses - including $51,225 in meals, $149,155 in accommodation and $1,995 in other miscellaneous expenses; FTI Consulting spent approximately 686.8 hours on a workflow called "Exchange Restart" and charged $761,997.70 in fees.

It should be noted that according to the U.S. Bankruptcy Law, the priority of the above-mentioned expenses in future repayment will be higher than the unsecured ordinary claims before filing for bankruptcy, that is, various administrative expenses will be settled first and then creditors will be compensated.

Of course, FTX's current CEO John J. Ray III, who earns $1,300 an hour, has not made no achievements. At a hearing in Delaware in May, FTX lawyers said that more than $7.3 billion in assets have been recovered, an increase of $800 million from January - this is undoubtedly a good signal for creditors. In addition, John J. Ray III also confirmed the FTX 2.0 plan and plans to restart FTX.

However, the transparency and rationality of related expenses are still controversial, and John J. Ray III obviously did not do well in this regard.

Recently, Bloomberglaw reporter Roy Strom wrote an article about the tricks behind FTX’s legal expenses. Odaily Planet Daily compiled the article as follows:

It’s an anxious time for law graduates about to enter the nation’s largest law firms. Some firms are laying off attorneys and delaying the hiring of associates, hoping to cut costs as corporate deal volume plummets. But there’s one area where some big firms are hiring: bankruptcy cases.

New attorneys at Sullivan & Cromwell (FTX Counsel), Quinn Emanuel Urquhart & Sullivan (FTX Counsel), Paul Hastings and other firms are increasing their billing time on major bankruptcy cases. According to New York Bar Association registration records, some of these attorneys will not become licensed attorneys until May or June of this year. Many of these 2022 law graduates have started charging before they even get their law licenses.

At Sullivan & Cromwell, for example, at least 33 2022 graduates began charging hourly fees in the FTX bankruptcy case. According to court documents filed by the firm, these new lawyers typically charged $775 per hour, worked more than 9,500 hours, and had a total fee of more than $7.4 million.

In just six months, Sullivan & Cromwell’s 33 new lawyers brought in an average of about $225,000 in revenue — and the case is not expected to end soon, and they will continue to increase profits for the firm — helping Sullivan & Cromwell to earn nearly $6 million in profits per equity partner. The fees collected by the new lawyers are also just a small part of the $80 million in fees Sullivan & Cromwell collected from FTX.

In fact, many corporate clients refuse to pay for new lawyers—they believe they shouldn’t have to pay while the “little lawyer” learns the ropes of big law. In New York, unlicensed graduates worked for firms while studying for the bar exam or awaited the results of their exams, which were taken last February or July.

Jan Jacobowitz, a lawyer with legal ethics, said law graduates can do research, document review, proofreading, but they just can't give legal advice to clients. She said unlicensed graduates must work under the supervision of an attorney. "Law graduates are considered 'non-lawyers' under the rules of professional conduct. The rules state that the management of a law firm should establish policies and procedures so that all attorneys and non-lawyers adhere to the legal ethics code."

Specifically for Sullivan & Cromwell, one of the most efficient lawyers involved in the FTX case has not yet registered as a licensed attorney in New York. After passing the bar exam in July 2022, she has been working "night shifts" (implying illegal employment). Court records show that in February alone, the lawyer worked an average of more than 7 hours a day; in six months, her billable hours exceeded 950 hours, earning the company $740,000.

Court documents also show that another new lawyer at Sullivan & Cromwell passed the February 2022 New York Bar Exam but also did not get a New York law license, but her hourly rate was $1,310, much higher than the $775 charged by other new lawyers. Her fee was the same as another lawyer who graduated from law school in 2019 and obtained a license in 2020. Lawyers who graduated in 2021 typically charge $960 per hour.

Sullivan & Cromwell isn’t the only firm to have rookie attorneys on staff in Chapter 11 bankruptcies.

Quinn Emanuel, who was hired as a litigation special counsel in the FTX case, has seven attorneys who will not be licensed until 2023. They billed $747 an hour and earned nearly $665,000, according to court documents, and the firm billed unlicensed law graduates as paralegals at $508.50.

Paul Hastings also has two new lawyers on the FTX case, who are lawyers for the creditors committee. In March of this year, Paul Hastings' new lawyers worked 243 hours, including weekends, an average of nearly 8 hours a day. Currently, Paul Hastings' legal fees have risen from $755 per hour in February to $855; so far, the law firm has charged nearly $950,000.

The question is, is it too late to change careers and become a bankruptcy lawyer?