FTX's Fourth Anniversary: When Bankruptcy Becomes a Business

Author: David, Deep Tide TechFlow

On November 11, 2022, FTX filed for bankruptcy, exactly four years ago from yesterday.

Today, four years later, the most talked-about news is SBF serving 25 years in prison and creditors having recovered over 100% of their payouts. But few ask who handled this bankruptcy and how much they took away?

When a company declares bankruptcy, the matter does not end with the court. Someone needs to take over the company, clarify the accounts, recover the scattered funds, litigate with creditors and debtors, and finally distribute the money proportionally.

This task is both detailed and lengthy, and FTX has brought in a professional team.

Leading the team is John Ray, a restructuring expert who specializes in handling bankrupt companies, previously managing the bankruptcy of the American energy giant Enron. He has a law firm, a financial consulting company, and a host of other advisors under his command.

These individuals charge by the hour, with their fees coming from FTX's remaining assets, which is essentially the money that was supposed to be returned to creditors.

According to foreign media statistics, from August to October 2023, this team's bill was at least $118 million. Averaging over three months, that’s $1.3 million a day, or $53,000 an hour.

The bankruptcy of FTX itself is a business with bills, charging parties, and controversies.

First Earn $1 Billion

How big is this business?

Bloomberg reviewed court records in February 2025. By January 2, 2025, FTX had paid over $948 million to a dozen institutions, commonly referred to as cleanup service fees.

Leading the charge are two firms.

One is the law firm Sullivan & Cromwell, abbreviated as S&C. FTX hired it as its primary law firm, handling lawsuits, debt collection, and dealings with the court. It received about $249 million, which means partners earned up to $2,165 per hour.

The other is the consulting firm Alvarez & Marsal, which specializes in accounting for bankrupt companies. FTX's money was scattered across over 130 affiliated companies, and this firm received about $306 million, more than the law firm.

There’s another easily overlooked amount. In bankruptcy cases, creditors elect a committee to oversee the entire process. The lawyers and consultants hired by this committee also draw from the bankruptcy assets, totaling about $110 million.

Throughout American history, the most expensive bankruptcy case was Lehman Brothers during the 2008 financial crisis, which cost about $6 billion to handle. FTX's nearly $1 billion also ranks among the most expensive.

In the cryptocurrency industry, it stands out even more. The lending platform Celsius, which also went bankrupt, had a bill of $87 million in its first half, while FTX exceeded $200 million in its first seven months.

Why is handling bankruptcy so expensive? The management team and lawyers provide the same explanation:

The accounts are a complete mess.

FTX had almost no proper accounting records, and the money was scattered across over 130 affiliated companies. To recover these funds, a large number of people had to check each account, and in the first three months, there were 242 lawyers billing for this case.

The messier the accounts, the more time it takes, and since these people charge by the hour, the bills keep growing.

With such large bills, someone naturally needs to check for discrepancies. The court appointed an independent fee examiner for this case, named Katherine Stadler, who specifically checks the bills submitted by the law firms and consultants to see if there are overcharges or duplicate charges, and then advises the court on whether to approve them.

Her first batch was the bills from the first three months, totaling $88.8 million, and she recommended the court approve $85.1 million of that, which is most of it.

When she submitted her summary report in June 2023, the bills for the first seven months had already exceeded $200 million. Her assessment was that this figure is indeed astonishing, but these people are dealing with a huge mess and performing excellently.

Money spent has indeed recovered assets. According to experts quoted by Bloomberg, creditors today can recover 118% thanks to these lawyers and consultants who meticulously tracked down the scattered assets.

No Motivation to Conclude the Case

In this massive machine of bankruptcy, chaos is never an obstacle. Chaos is a productive resource.

The more FTX's accounts resemble a tangled mess, the more justified the liquidation team's bills become. The trust's financial report shows that in just the first quarter of this year, operational expenses reached $85 million. This means that every day, regardless of how much asset is recovered, nearly $1 million is already siphoned off from the pool that belongs to creditors.

This daily expense of $1 million sustains a large and prolonged legal war of attrition.

As the bankruptcy case delves deeper, what remains are tough bones to chew. First, there are disputed claims amounting to nearly $2 billion, which the trust does not recognize, and claimants do not withdraw; every verification and negotiation requires court hearings, evidence collection, and submission of legal opinions. Then there are scattered lawsuits for recovery, with the trust suing various institutions and individuals who withdrew funds before FTX's collapse, with lawsuits coming one after another. Even if only a few million dollars can be recovered after months, the litigation machine must never stop.

There was even an absurd episode in between:

The trust once applied to the court to suspend payments to creditors from 49 countries and regions, including China, citing "local legal restrictions," involving about $800 million. Faced with over 70 vehement objections, the trust quietly withdrew the application four months later. In this back-and-forth, the victimized creditors received nothing, but the law firms and consulting advisors steadily billed hundreds of hours of senior partner time for this compliance paperwork.

The hourly billing system (Billable Hours) creates a commercial logic where professional elites have no motivation to conclude the case early.

In the traditional business world, time is a cost that companies must compress; but in the business of bankruptcy restructuring, time itself is a profit that is clearly priced.

The Most Expensive Mediocrity

If the high legal fees are visible bleeding, then the bankruptcy team's "defensive mediocrity" in asset disposal represents an even greater hidden loss for creditors.

Aside from the tokens on hand, SBF's most valuable legacy was a series of equity investments. The largest of these was a $500 million investment in the AI unicorn Anthropic in 2021, which secured about 8% of the shares.

In the first half of 2024, the trust team responsible for managing the assets sold all these shares in two batches at about $30 per share, totaling approximately $1.3 billion. Compared to the initial investment of $500 million, the restructuring team presented a respectable report in court, declaring they had "netted creditors $800 million."

However, in the logic of tech investments, this was the most brutal premature exit.

Just as the liquidation team hurriedly cashed out and exited, the super wave of generative AI swept the globe. Anthropic subsequently received new rounds of heavy investment from tech giants, with its valuation skyrocketing geometrically. According to subsequent fair market valuations, the shares that were hastily sold had already multiplied in value, with potential appreciation reaching tens of billions of dollars.

This super Alpha, which could have provided all creditors with more ample compensation and even fully covered inflation losses, was entirely abandoned before dawn broke.

Such an absurd contrast rarely appears in business history:

The gambler SBF, who had no internal controls and casually misappropriated client assets, instinctively hit the jackpot with today’s leading AI giants; while a professional army composed of the nation’s top bankruptcy lawyers and restructuring experts, out of an almost instinctive "risk-averse" mentality, completed a hasty cash-out before the wind truly took off.

For the bankruptcy pipeline, they do not need to bear any legal responsibility for "missing out"; their legal primary principle is "defensive risk aversion"; as long as they convert it into cash and deposit it in the bank, completing the rigid repayment on the balance sheet, their work is impeccable.

This systemic mediocrity and correctness ultimately impose an extremely expensive opportunity cost on creditors.

The Ultimate Winners in the Revolving Door

As bills are extended and assets are liquidated at a discount, the deepest fissures of this bankruptcy drama ultimately fall on the ethical role of the liquidators themselves.

In early 2024, a group of FTX creditors officially sued Sullivan & Cromwell (S&C) in the Miami federal court, the very law firm that took about $250 million from the bankruptcy assets.

Creditors accused it of being deeply involved in FTX's affairs even before the bankruptcy, handling up to 20 legal matters for FTX in the 16 months leading up to the collapse, covering regulatory reviews and complex acquisition cases.

The creditors' anger is evident: the very people sitting on the bench and the liquidation table, holding exorbitant hourly rates, were precisely the ones sitting next to that mess at the card table back then.

S&C quickly applied to dismiss the charges on the grounds of being a "disinterested party" as determined by the bankruptcy court. In the vast legal maze of bankruptcy restructuring, such lawsuits are highly likely to drown again in the lengthy procedural review. And every minute spent on the review still translates into dollars on the bill.

Four years later, the aftermath of FTX presents a peculiar dark humor:

The instigator SBF counts his 25-year sentence in federal prison; creditors, after a long wait of over four hundred days and nights, finally receive their delayed fiat repayments; while the true beneficiaries, who emerged unscathed and profited immensely, are the elite army from Wall Street, who calmly dismantle the ruins, sell off the most imaginative assets, avoid all potential professional risks, and promptly deliver nearly $1 billion in service bills.

For the cryptocurrency world, FTX's collapse is a catastrophe; but for the bankruptcy liquidation industry, it is merely another perfectly delivered billion-dollar order.

SBF's story has come to a complete end, but the lucrative business revolving around the ruins will never easily conclude as long as there are balances on the books.