Four Years After FTX's Bankruptcy, When Bankruptcy Itself Becomes a Business

Author: David, TechFlow

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

Four years later, today's headlines focus most on SBF serving a 25-year prison sentence and creditors recovering over 100% of their claims. But few ask who is handling this bankruptcy and how much they have taken.

A company declaring bankruptcy doesn't end once handed over to the court. Someone next needs to take over the company, audit the books, recover funds scattered across various places, litigate against debtors and creditors alike, and finally distribute the assets proportionally.

This job is both meticulous and lengthy, so FTX brought in a professional team.

Leading the effort is John Ray, the restructuring expert shown below who specializes in taking over bankrupt companies, having previously handled the collapse of American energy giant Enron. Under his command are a law firm, a financial consulting firm, and numerous other advisers.

All these professionals bill by the hour, with fees drawn from FTX's remaining assets, which is precisely the money that was originally meant to be returned to creditors.

According to foreign media statistics, between August and October 2023, the team's bills totaled at least $118 million. Averaged over three months, that comes to $1.3 million per day and $53,000 per hour.

FTX's bankruptcy has itself become a business with invoices, billing parties, and controversies.

Earning the First Billion Dollars

How big is this business?

Bloomberg reviewed court records in February 2025. By January 2, 2025, FTX had paid a dozen institutions a total of $948 million, commonly referred to as the "clean-up fee."

Two firms lead the pack.

One is the law firm Sullivan & Cromwell, abbreviated as S&C. Hired as lead counsel, it handles nearly all litigation, debt recovery, and court dealings in the case. It billed approximately $249 million, translating to partners charging up to $2,165 per hour.

The other is the consulting firm Alvarez & Marsal, which specializes in reconciling accounts for bankrupt companies. With FTX's funds scattered across more than 130 affiliated entities requiring line-by-line reconciliation, the firm billed around $306 million, exceeding even the law firm's fees.

Another easily overlooked expense involves a creditors' committee elected to oversee the process on behalf of creditors. The lawyers and advisers hired by this group also draw from the bankruptcy estate, accumulating roughly $110 million.

In U.S. history, the costliest bankruptcy was Lehman Brothers during the 2008 financial crisis, where administration costs reached approximately $6 billion. FTX's near-$1 billion figure ranks among the highest.

The figures are even more staggering within the crypto industry. For similarly bankrupt lending platform Celsius, the first-half bills amounted to $87 million, whereas FTX exceeded $200 million in just seven months.

Why is bankruptcy administration so expensive? Management teams and lawyers offer the same explanation:

The books were a complete mess.

FTX barely maintained any decent accounting records, with funds dispersed across over 130 affiliated companies. Recovering these funds required large teams to audit account by account, with 242 lawyers billing time on the case in just the first three months.

The messier the books, the more time required. Since these professionals bill hourly, the invoices simply snowball.

With such massive bills, someone must check for padding. The court appointed an independent fee examiner named Katherine Stadler, whose job was to scrutinize invoices submitted by law firms and advisers line by line for overcharges or duplications before recommending approval to the court.

In her first review covering the initial three months, she examined $88.8 million in bills and recommended approving $85.1 million, effectively passing through most of it.

When she submitted her summary report in June 2023, bills for the first seven months had already surpassed $200 million. Her assessment was that while the number is indeed astonishing, the team faced a chaotic mess and performed admirably nonetheless.

The expenditures did yield tangible results. According to experts cited by Bloomberg, creditors can now recover 118%, thanks to these lawyers and advisers meticulously tracing and recovering scattered assets.

No Incentive to Close the Case

In the massive machinery of bankruptcy, chaos is never an obstacle. Chaos is the raw material.

The more convoluted the records left behind by FTX, the more justified the liquidation team's invoices become. Financial statements submitted by the trust show that operating expenses alone hit $85 million in Q1 of this year. This means that each morning the bankruptcy restructuring team starts work, nearly $1 million is already drained from the creditor pool, no matter how many assets have been recovered.

This daily $1 million expenditure sustains a vast and protracted war of attrition in the courts.

As the bankruptcy enters deeper waters, only the hardest cases remain. First come disputed claims nearing $2 billion, which the trust rejects and claimants refuse to withdraw, requiring court hearings, evidence collection, and legal memos for every single item. Then there are recovery lawsuits scattered everywhere, as the trust sues various institutions and individuals who extracted funds before FTX's collapse. Lawsuits follow lawsuits, and even if months of litigation only yield a few million dollars back, the litigation machine cannot stop.

Absurd interludes have even occurred along the way:

The trust once petitioned the court to suspend distributions to creditors in 49 countries and regions, including China, citing "local legal restrictions," involving approximately $800 million. After facing over 70 fierce protests, the trust quietly withdrew the request four months later. In this push and pull, affected creditors received nothing, but law firms and consulting advisers steadily billed hundreds of senior partner hours for the round-trip compliance paperwork.

The pay-per-hour (Billable Hours) system design gives these professional elites zero commercial incentive to bring the case to an early close.

In the traditional business world, time is a cost that enterprises must compress; but in the business model of bankruptcy restructuring, time itself is profit with a clearly marked price tag.

The Costliest Mediocrity

If exorbitant legal fees represent visible bleeding, then the bankruptcy team's "defensive mediocrity" in asset disposition constitutes an even larger hidden loss swallowed by creditors.

Beyond the tokens on hand, SBF's most valuable legacy included a portfolio of equity investments. The largest was a $500 million investment in AI unicorn Anthropic in 2021, securing roughly an 8% stake.

In the first half of 2024, the trust team responsible for managing assets sold the entire stake in two tranches at approximately $30 per share, cashing out roughly $1.3 billion in total. Compared to the initial $500 million entry cost, the restructuring team neatly wrapped up its court-mandated duties, announcing it had "netted $800 million" for creditors.

But in the logic of tech investing, this was the most brutal early exit.

Immediately after the liquidation team hastily cashed out, a super wave of generative AI swept the globe. Anthropic subsequently secured new rounds of heavy funding from tech giants, with its valuation skyrocketing geometrically. Based on subsequent fair market valuations, those hastily sold shares had multiplied in value several times over, leaving tens of billions in potential appreciation unrealized.

This super alpha, which could have provided creditors with far more ample compensation or fully offset inflation losses, was entirely abandoned before the dawn broke.

The business history rarely presents such an absurd juxtaposition:

SBF, the gambler back then with zero internal controls who freely misappropriated client funds, accidentally bet on today's leading AI giant through chaotic intuition; meanwhile, a professional legion comprising America's top bankruptcy lawyers and restructuring experts, driven by near-instinctual "risk avoidance and liability shielding," executed a stampede-style cash-out before the trend truly took off.

For bankruptcy administrators, they bear no legal responsibility for "missing out." Their paramount statutory principle is "defensive risk avoidance"; as long as assets are converted into US dollar cash deposits and rigid fiat settlement obligations are met, their work remains impeccable.

This institutional mediocrity and correctness ultimately leaves creditors to bear an extremely costly opportunity cost.

The Ultimate Winners in the Revolving Door

As bills stretch out and assets are liquidated at a discount, the deepest rift in this bankruptcy drama ultimately falls upon the role ethics of the liquidators themselves.

In early 2024, a group of FTX creditors formally sued Sullivan & Cromwell (S&C) in federal court in Miami—the very law firm that carved out roughly $250 million from the bankruptcy estate.

Creditors accused it of being deeply entangled in FTX's affairs well before bankruptcy, handling up to 20 legal matters for the company in the 16 months preceding its collapse, encompassing regulatory reviews and complex acquisitions.

Creditor anger is palpable: The very people now sitting in judgment and on liquidation panels raking in astronomical hourly rates were, back then, seated right beside the table dealing out that chaotic mess.

S&C swiftly moved to dismiss the allegations, citing bankruptcy court recognition of its status as an "impartial party." Within the vast legal maze of bankruptcy restructuring, such lawsuits will almost certainly drown again in prolonged procedural reviews. And every minute spent reviewing will continue to translate into blinking dollars on the invoice.

Four years on, the wreckage of FTX reveals a peculiar dark humor:

Mastermind SBF counts down his 25-year sentence inside a federal prison; creditors, after more than 400 grueling days and nights, finally await delayed fiat repayments; and the ones walking away completely unscathed and swimming in profits are that army of Wall Street elites marching in with briefcases.

They calmly dismantle the ruins, sell off the assets with the highest imagination premiums, sidestep every potential professional risk, and deliver their service invoices totaling nearly $1 billion right on schedule.

To the crypto community, the collapse of FTX was an apocalyptic disaster; but to the bankruptcy liquidation industry, it is merely another perfectly delivered, multi-billion-dollar contract.

SBF's story has ended forever, but this lucrative business revolving around the wreckage will never shut down as long as there are balances on the books.