Who Is Kirkland + Ellis LLP?

major player in crypto. Earlier this month, the firms signed on to work on the bankruptcy filings for both Celsius Network and Voyage of Digital. There's relatively little case law that addresses how crypto assets and their holders should be treated in a bankruptcy. That means any legal precedent set in these cases could shape the future of crypto lending and crypto bankruptcy and determine how distressed crypto companies pay back their creditors. Form on this joining me now you'll

hear from Bloomberg report to Jeremy Hill. He'll share his reporting on big Laws entry into the world of krypto. Jeremy, thank you so much for being on the show. Thank you for having me. So, before we get into the weeds of krypto and bankruptcy and bankruptcy filings, what is it that lawyers do in these sorts of situations? What is Kirkland's rule here? Sure, so Kirkland Analysis is representing

the company in these bankruptcies. There are lots of different roles that lawyers can play when a company falls into distress um and one of the most important ones is giving advice to the bankrupt company itself and its management. So here Kirkland has come in. They've been hired by the company to sort through how much money it has or doesn't have, where the biggest problems are, and give them advice on how they can and can't behave as

a bankrupt company. In the United States, there are very specific and criss crossing rules about things you can and can't do. Do they do is for free? They certainly don't do it for free, the opposite of free if you can, if you can imagine so. Colleagues on Bloomberg Globe published a story earlier about you know Kirkland, which has been involved in multiple difference at this point, crypto companies, bankruptcy, filings that they made something like three million dollars in

a relatively short amount of time. I would like to make three million dollars in a relatively short amount of time. But what are the kinds of tasks? What's the kind of advice as you mentioned that they would possibly be giving to these companies, What does that look like? Sure, so let's start with the kinds of things that need

to be understood. Once a team of lawyers is brought under the hood of a company hires Kirkland Annalys or any other big law firm UM to to give them advice on their financial situation, these lawyers are going to need to get up to speed on UM the kinds of holes that may exist in their balance sheet, how much money is coming in, how much as going out, what kind of actions have been taken in the weeks leading up to the hiring of this law firm, and

are those problematic? All of this stuff just takes um time crucially and a certain amount of knowledge about things that are important in the context of a of a failing company, a distressed company. And when you're charging something like an hour as more senior people at Kirkland do UM, the builds add up fast they have. You even seen some associates, some lower level big law attorneys charging more than a thousand dollars an hour. Good work if you can get it well. There's a lot of work to

go around at this moment. Voyager is one of the companies that's been hit hard by the bad tab from Three Arrows Capital, which is a cryptal hash fund, and Voyager provides trading of staking services and then most importantly lending services. So this is where they take cryptal deposits from retail users and then they landed out to institutional borrowers such as Three Arrows Capital in order to generate a yield. The issue here is as Windows three Arrows

Capital has been defaulting on islan. The company is set for liquidation in British Virgin Silence, and Voyager was not unable to get back the loan from Three Arrows Capital, which triggered this bankruptcy proceeding for Voyager. Sometimes when people hear bankruptcy they think, oh, no, this company is like shutting down immediately, or that means that I as a person, I am completely out of luck. I have no claim left.

What in practice is bankruptcy shaping up to be like for these crypto companies, like, what are the next steps? I am Voyager, I'm Celsius. I filed for bankruptcy protection, Like what does that mean if I'm somebody who had crypto with one of these companies? Right, So, bankruptcy is not a good thing. I think everyone knows that, but as saying, it's not the end of everything. Something that you'll hear a lot from lawyers and judges to like,

is this phrase breathing spell. When you file for bankruptcy in the United States, it gives a company or a person legal protections that they don't otherwise have, where they're protected from people that they owe money to suing them or otherwise just trying to seize their assets. So this gives you time to sort of, Okay, what's going on, what can we do and how can we repay our debts in the best way possible. It gives them a

breathing spell. It's too early to say how much creditors of Voyager or Celsius are going to get back and even in what form they'll be repaid, if that's cash, if that's crypto, but it's going to be more than zero. Usually everybody gets a little something unless you are like a stockholder, and I don't think that's the biggest concern here, not at the moment. It's more people who are like, I had a million dollars in bitcoin with Celsius, what

do I do now? There's something that you said at the very beginning that I want to go back to, which is the idea of where are the holes. The recent Bloomberg Crypto conference in New York, we heard Sam bankmunt Freed very colorfully described the fact that when you know, he's Mr Bilouds at the moment, and so when he was being called up by various crypto companies to get either rescued or advice, he would ask them questions that included, well, tell me about your positions, like what do your books

look like right now? Do you know where your assets are? Do you know what your liabilities are? And one of the things he said that really struck me was some folks just couldn't answer that question, like they didn't really have a good sense of their holdings or who their

creditors were, who their debtors were. As the case may be, is that an area that these lawyers are having to spend perhaps an above average amount of time on When it comes to crypto companies compared with maybe other firms and other sectors, difficult to say precisely what they're doing behind the scenes these platforms, though, Voyagers Celsius, they seem more complicated than your average bankruptcy. If you're like a retailer, you know the supply chain might be complicated. J C.

Penny went bankrupt a few years ago. Big stores all over the country, vendors overseas. But at the end of the day, you have uh people spending money at the store and you have inventory that is sold. It's like pretty intuitive what's going on there? Lots of crashed questions um around crypto about what these assets actually are, who has a claim to them, what does it mean to be a depositor? Um, Who should we be talking to? So things are just a bit more complex than they

are in a run of the mill bankruptcy. And to go back to what you said about this bankruptcy not being the end, like J C. Penny is in business now, so you know they have come back from from that claim. It may not have played out the way that everybody wanted it, but you can still buy things from them. I do think the point that you make about complex asy is really really important. And in additional parts of that complexity is there just haven't been a ton of

crypto bankruptcies prior to this one. So you know, as reposes, certainly we're getting the impression that folks are like slightly figuring things out as they go. Is that something that you have seen as well in your reporting. Yes, it seems like a little bit of on the fly sort

of sort of advice um. In the case of Voyager, for example, Kirkland and Elis, as soon as the case was filed, they uploaded what they called a stocking horse bankruptcy plan, the idea being, uh, if we can't figure out anything better, here's how we're going to repay people, and this is how it works. And this is our view on the law. Now, as I've done some more

reporting since then, interesting questions have emerged. Voyager is assuming that the user agreement that people signed when they deposited their crypto onto the platform, that that has effect, that that is binding because the user agreements said basically, you put your crypto here or it belongs to us. Now that's just part of the deal. But perhaps if users didn't think that's what was going on. Even if they signed it, if enough of them say I really thought

this was more like a bank situation. I thought you were just holding my stuff. It may be the case that that agreement is not all and a judge is going to have to decide that. And if the whole bankruptcy plan is premised on this idea that the user agreement was legit changes everything. That's just one of the questions. Just nobody knows the answer. I don't know that the judge knows the answer. It comes spooky, It's quite spooky. I mean, it's such a fundamental question whose crypto is it?

That seems like a major thing to hash out. Right, we'll be right back with more from Bloomberg Reports or Jeremy Hill on the legal team tackling crypto bankruptcies. And so when you say the judge decides, you know, it's basically you're going to have the lawyers for the company making arguments to the judge in one direction. But you know what, I think when people think about court cases, there's like a prosecution and a defense. So who's representing

the other side of that argument? Right, bankruptcies are a little bit different in that way, because often there are little skirmishes UM rather than there's like a villain and a hero, or this side and that side. The company is working with creditors usually like the company has a duty to maximize the value of its assets for the benefit of creditors, and creditors are the people they owe

money to, exactly right. So in the case of Voyager and Celsius, the people who use the platform their creditors. Now it's not the best life ever. So okay, that's a very helpful explanation. So when it comes to Voyager, you know they've got Kirkland on one side, but who's going to represent the creditors? Right? The creditors are going to be represented by a law firm called McDermott, Will and Emory. It's a big law firm base three to

I'm sure presumably. So that is who Voyage your customers UM will have on their side and engaging with Kirkland and engaging with Kirkland's financial advisors about what the best way to repay creditors is and how do they get picked. Did the creditors get together and decide it's a it's a pitching process. So this arm of the Department of Justice called the US Trustee. They act like we we we say they police bankruptcy court, but basically they like

kind of referee um. At the beginning of a case, they will put out mail asking for people who want to serve on the creditor committee. People will respond, The US Trustee will select some people to serve on the committee, and then there's a pitching process to decide which law firm gets to represent the committee. And if you're a person that has money on these platforms, you can reach out to this lawyer. You don't have to pay for them. The company pays for this lawyer and they kind of

have to listen to you. So wait, the company has to pay two sets of lawyers. It has to pay the lawyers that are advising them and what they should do, and it has to pay lawyers who are going to advise creditors on what they should do. That's absolutely right. That seems wild. Yeah, it's a it's a pretty nice like side benefit. So when a company goes bankrupt, it stops being like you know, Voyager or Celsius, and now

it's the estate a Voyager or Celsius. So it sounds very fancy and old now that I think about it. So the estate pays for the lawyer that represents the official committee of unsecured creditors, and those are going to be people that have used Celsius and Voyager. And in the meantime, the estate is paying all of these lawyers with money that would otherwise potentially be recovered by creditors. Yes, this comes up all the time. It's a source subject.

But the thinking is, the thinking is in theory, if you have really good lawyers who really understand bankruptcy law and are good negotiators, everybody's better off, because probably it's better than if the company just liquidated. We just sold everything that Celsius owns and distributed them according to everyone, slice up the pie. That would be okay, probably pretty sad.

If you can do even just a penny better than that by having really fancy lawyers do get out and come up with some plan for the future, why not do it? I'm sure that's what the lawyers would argue. And you know, you make a good point about liquidation.

This is a pretty aggressively negative market right now, and so it doesn't seem like selling off crypto assets when you know Bitcoin is hovering below eighteen is is the move that the creditor is probably one that's exactly right, And um, it's something that is going to come up in court. I'm sure. UM. I really do not want to compare this to Lehman Brothers, but I'll just make everyone's doing it. I would just make the point that Lehman Brothers was also unusual because it took many years

for its bankruptcy to to play out. It's technically not over yet, there's still a little bit of stuff to sort out. The reason it took so long is in part because the people involved took a look at the assets that they had to distribute and said, now is not a good time. Two thousand eight, thousand nine is not a good time to sell these off. So let's hold on and wait for things to improve, and then we will sell these and distribute the proceeds to creditors.

And of course, things improved fairly dramatically in the following years compared to what the markets were trading out in two thousand and eight two thousand nine. I know no one who is currently making well, that's not true. There's a few people who are, like Bitcoin will definitely go back to a hundred thousand dollars, but they may not be as confident in those predictions as they were six months ago. You know, you've mentioned some interesting misconceptions that

folks might have about bankruptcy and how this works. I imagine at parties when people hear what you do, you become the most interesting man in the room. I'm sure that's what your life is like. But is there anything you find yourself sort of explaining to non bankruptcy experts Often I think a lot of people are under the impression that, as you alluded to earlier, company files for bankruptcy and then it's over. They just throw in the towel um. But actually the action just starts when a

company files that Chapter eleven petition. There's so much interesting stuff, both legally and just like you know, little knife fights that occur between creditors and the company after the petition is filed. It's worth following along because the company's fortunes can change dramatically while they're in core protection. I want to come back to what you said about leban Leman file for bankruptcy on September eight. So is the takeaway here that the folks who are creditors to Celsius and

voyagers should maybe expect a long journey. Probably not that long, that is, uh Lehman is like it might have said some kind of records for for how long things have been playing out. I mean, it's the biggest bankruptcy of all time. But in general, these things do you take a while to play out because if there's especially if there's any kind of litigation, if somebody wants to sue the company or its founders. Oh man, things just really

start to get kicked out timeline wise. Takes forever to dig through all these documents, make people sit for depositions and then get a trial date and all of this. At the end of it, um, maybe the judge is just like, oh, I don't know, maybe fifty million dollars to the creditors. What a fascinating time. Thank you so much, Jeremy, I really appreciate you being here today. Problem On the next episode of Bloomberg Crypto, we're going to explore a

fascinating tension. Fascinating to me at least, on the one hand, there's a belief in the necessity, indeed the superiority of decentralization. On the other hand, there's the reality that when things hit the fan, which happens often, folks respond by seeking a bailout or by demanding that someone, anyone, even a regulator, hold frauds does accountable. In an industry so prone to spectacular scams and expensive hacks, this tension is ever present.

Can you simultaneously reject all forms of centralized control and then seek help from big centralized authorities in times of trouble. For more on this, you'll hear from Bloomberg reporter Emily Nicole m I'm Stacy Marie Ishmael, and this is Bloomberg Crypto, a daily podcast from Bloomberg and I Heart Radio. For more shows from I Heart Radio, visit the I Heart Radio app, Apple Podcasts, or wherever you get your podcasts.

Email your questions, comments, or suggestions for the show to Crypto at Bloomberg dot net, and you'll find us on Twitter at Crypto. The supervising producer of Bloomberg Crypto is Vicky very Galina. Our senior producer is Janet Babin. Our producer is Sharon Burriro, associate producer is Ty Butler. Desta wonder At is our engineer. Original music by Leo Sidrin,