Big Law’s Crypto Bet Is Paying Off—Just Not How Lawyers Expected

Welcome back to the Big Law Business column on the changing legal marketplace written by me, Roy Strom. Today, we look at how Big Law restructuring partners are reaping the benefits of the crypto meltdown. Sign up to receive this column in your Inbox on Thursday mornings.

This is not what Big Law firms had in mind when they started hiring crypto lawyers.

The most obvious tell: bankruptcy practitioners don’t lead the crypto groups.

As Bitcoin boomed and blockchain evangelists spoke of a technological revolution, large law firms poured in, seeking to be the trusted advisors to a fast-growing business. Quinn Emanuel even started accepting Bitcoin as payments.

Yet, as the digital asset industry convulses from huge declines in asset prices and allegations of widespread fraud, it’s restructuring lawyers who are poised to cash in on a surge of legal fees.

The money will come from clients law firms figured their transactional or finance partners would help grow into a more mainstream alternative to traditional banking.

This is not a bad outcome, at least for law firms. It’s their bet on the industry paying off, even if it isn’t in the way they expected.

The prevailing strategy among law firms today is to advise clients on their entire range of legal matters. Developing crypto clients on the transactional or litigation side and passing them along to the restructuring group would be a badge of honor for any Big Law managing partner who sings the “collaboration” tune.

Consider Haynes and Boone’s longtime relationship with BlockFi, the most recent crypto exchange to file for bankruptcy.

When BlockFi hired Jonathan Mayers as its general counsel in 2020, he told Bloomberg Law he expected to continue working with Haynes and Boone and Gunderson Dettmer—two firms he said primarily served as the company’s outside counsel.

Haynes and Boone was in building mode for BlockFi, advising last summer on the rollout of an industry-first credit card that allowed users to earn rewards in Bitcoin. (The cards have since been frozen and there’s reported negotiations for payments company Curve to purchase the 87,000 cardholders’ accounts.)

“We are thrilled to have partnered with BlockFi since its founding to redefine what banking looks like in the 21st century,” Haynes Boone partner Alex Grishman said at the time.

Fast forward to this week, when a federal judge held the first hearing in BlockFi’s bankruptcy case.

Haynes and Boone is co-lead counsel for the company, alongside Kirkland & Ellis, and the firm’s restructuring partner Richard Kanowitz will be leading the charge as BlockFi seeks to recover hundreds of millions from FTX, according to testimony in the bankruptcy hearing.

Sullivan & Cromwell has taken the lead in longtime client FTX’s bankruptcy, but the full extent of Big Law’s involvement in that case remains unknown. A bankruptcy judge granted a highly unusual request to seal the company’s 50 largest creditors, meaning lawyers for those parties have yet to file appearances in the case.

But there’s little doubt plenty more law firms will be involved on behalf of clients they’ve represented for years. And the legal fees from prolonged bankruptcies will likely be enough to justify the firms’ investment in crypto in the first place.

Sidley Austin currently represents more than a dozen counterparties in crypto exchange bankruptcies, Lilya Tessler, who leads the firm’s fintech and blockchain group, said. That practice has long collaborated with lawyers across the firm and earlier this year began consulting with restructuring lawyers more frequently, Tessler said.

“That’s a key part of our cross-practice team and capabilities that clients are really leaning on us for in this current environment,” she said.

That brings us to the longer-term question: What happens to Big Law crypto practices if and when the smoke clears from the FTX fallout?

It’s an open question what the industry will look like going forward. It was headline news this week when BlackRock Inc. Chief Executive Officer Jim Fink predicted most crypto companies will fail.

But at least some lawyers are optimistic.

Sidley’s Tessler said companies that haven’t yet invested in blockchain technology are still considering new use-cases and the firm is fielding calls about potential investments at lower prices.

Crypto companies that survive today’s turmoil will do so because they built stronger policies and internal controls that build trust with customers, said Marshall Huebner, co-head of restructuring at Davis Polk & Wardwell. That makes lawyers with crypto experience even more valuable.

“People aren’t going to turn to generic, smart lawyers for that,” he said. “They’re going to turn to lawyers who’ve been doing crypto for a long time.”

Worth Your Time

On Big Law Bonuses: Bonus season is slowly starting for Big Law associates after Baker McKenzie, Boies Schiller and Cravath announced scales that for the most part meet last year’s, Meghan Tribe has reported.

On Big Law Layoffs: Cooley is laying off nearly 80 associates, Meghan reported. “Simply put, we hired more talent than we can reasonably develop, train and deploy against current and anticipated client demand,” the firm’s chairman Joseph Conroy said.

On BlockFi’s Bankruptcy: BlockFi is seeking to recoup $680 million from FTX’s Alameda in a disputed case that could go before a bankruptcy judge in January, Bloomberg’s Steven Church reported.

On Big Law Leaders: Dechert changed its leadership for the first time in six years, as partners David Forti and Mark Thierfelder will start running the firm as co-chairs July 1, Sam Skolnik reported.

That’s it for this week! Thanks for reading and please send me your thoughts, critiques, and tips.