FTX creditor raises concern about bankruptcy managers’ excessive spending

FTX Creditor Linda Favario has filed a complaint with the US Bankruptcy Court over the extravagant spending of the FTX Administrators. In her letter dated December 17, 2024, Favario called the court’s attention to the excessive expenses, noting that it is a norm for bankruptcy professionals.

The creditor’s letter follows similar concerns that bankruptcy judge John Dorsey raised during the December 12, 2024, hearing. Dorsey highlighted three questionable expenses in that hearing, including an $8,251 airline ticket, a $134 Uber ride, and a $120 hotel room meal.

According to Favario, these expenses are only a few of the extravagant spending by bankruptcy professionals, which contravenes the Department of Justice (DOJ) guidelines for Bankruptcy cases.

She wrote:

“My independent research suggests that these issues are not isolated but part of a broader pattern of excessive and unnecessary spending that contravenes the DOJ’s “Guidelines for Reviewing Applications for Compensation and Reimbursement of Expenses.”

Favario also highlighted several instances of excessive spending by bankruptcy managers, including employees of legal counsel Sullivan & Cromwell and bankruptcy expert Alvarez & Marsal. The CEO of the bankrupt exchange, John Ray III, was also accused.

Her letter included examples of how these professionals stayed in the 5-star Hotel Du Pont in Delaware and lodged at the luxury Grand Hyatt in Nassau, Bahamas, all on FTX money instead of using more affordable accommodation. An unnamed Alvarez & Marsal employee also spent  $971.74 to stay in a New York hotel for one night.

Meanwhile, the extravagant spending was not just on accommodation and meals. The professionals also spent exorbitant amounts on taxi rides and transportation, with bankruptcy managers using business class for most of their train travels and some of their flights.

Kumanan Ramathan, an employee of Alvarez & Marsal, allegedly spent $1,733 on taxis in just one week in November 2022, while the FTX bankruptcy estate also paid $2,683.14 for three taxi rides on December 12, 2023.

Favario asks the court to expand the expense review

With the creditor identifying several extravagant expenses and providing evidence to support them, she has now asked the court to expand the scope of the expenses review. She noted that the professionals’ spending shows that they have no regard for FTX funds, which belong to creditors who have suffered devastating losses due to the fraud.

According to Favario, increased scrutiny of the bankruptcy experts’ spending is important to ensure fairness in the case and that the FTX administrators comply with the DOJ guidelines.

The letter has attracted several comments from FTX creditors, many of whom have been highly critical of how the FTX administrators have handled the bankruptcy process. So far, the process has taken over two years, and over $300 million has already been spent as of September 2023.

The magnitude of expenses in the proceeding has attracted criticism from various quarters, including five bankruptcy law professors who filed an amicus brief in the Sam Bankman-Fried appeal in 2024. In the amicus brief, they noted that close cooperation between the bankruptcy lawyers and Government prosecutors cost FTX investors and creditors more money while allowing Sullivan & Cromwell to bill tens of millions of dollars.

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