FTX Creditor Sounds Alarm Over Extravagant Spending by Bankruptcy Managers
Concerns about excessive spending in the ongoing FTX bankruptcy proceedings have intensified, with creditor Linda Favario filing a complaint to the U.S. Bankruptcy Court. In a letter dated December 17, 2024, Favario pointed out extravagant expenses by bankruptcy administrators, accusing them of mismanaging funds that belong to creditors.
Allegations of Excessive Spending
Favario’s complaint echoes concerns raised earlier by Judge John Dorsey during a December 12, 2024, hearing, where he highlighted questionable expenditures:
- $8,251 airline ticket
- $134 Uber ride
- $120 hotel room meal
In her letter, Favario detailed several other examples of what she described as a pattern of unnecessary and extravagant spending, which violates 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.’”
Highlighting the Expenses
Favario’s letter names key players in the bankruptcy proceedings, including employees of Sullivan & Cromwell, Alvarez & Marsal, and FTX CEO John Ray III. Examples of excessive spending cited in the letter include:
- Luxury Accommodations:
Bankruptcy professionals stayed at the 5-star Hotel Du Pont in Delaware and the Grand Hyatt in Nassau, Bahamas, instead of more affordable alternatives. - Exorbitant Transportation Costs:
- An Alvarez & Marsal employee spent $971.74 for one night at a New York hotel.
- $1,733 was spent on taxis in a single week in November 2022.
- The FTX bankruptcy estate paid $2,683.14 for three taxi rides on December 12, 2023.
- Business-class travel was used frequently for both trains and flights.
Favario stressed that these practices show a lack of regard for FTX funds, which should be used to compensate creditors who have already suffered substantial losses due to fraud.
Call for Expanded Expense Review
Favario urged the court to expand its review of the bankruptcy managers’ expenditures, emphasizing the need for greater scrutiny to ensure fairness.
She wrote:
“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 drawn significant attention from other FTX creditors, many of whom have expressed frustration with the handling of the bankruptcy process.
Mounting Criticism
The FTX bankruptcy process, now in its third year, has already cost over $300 million as of September 2023, sparking criticism from various quarters.
- Legal Academia: Five bankruptcy law professors filed an amicus brief in 2024, criticizing the cooperation between bankruptcy lawyers and government prosecutors, which they say allowed Sullivan & Cromwell to bill tens of millions of dollars at the expense of creditors.
- Creditor Outcry: Many creditors accuse the administrators of prioritizing their own interests over those of the victims of FTX’s collapse.
The Bigger Picture
As the FTX bankruptcy drags on, calls for transparency and accountability are growing louder. Favario’s complaint highlights the ongoing tension between the interests of creditors and the actions of the bankruptcy managers, further complicating an already contentious process.
The court’s response to Favario’s request for an expanded review could set an important precedent for how bankruptcy proceedings are conducted in high-profile cases like FTX.
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