Author: David, Deep Flow TechFlow

On November 11, 2022, FTX filed for bankruptcy, exactly four years to the day from yesterday.

Today, four years later, the most talked-about news is about SBF serving 25 years in prison and creditors having recovered more than 100% of their claims. 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 has to take over the company, sort out the accounts, retrieve the scattered funds, litigate with those owed money and those who owe, and finally distribute the remaining funds proportionately.

This task is tedious and lengthy, so FTX hired a professional team.

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

These professionals charge by the hour, with payments 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 amounted to at least $118 million. Averaged over three months, that’s $1.3 million a day, or $53,000 an hour.

The bankruptcy of FTX itself is a business with invoices, charges, and controversies.

First make 1 billion USD

How large is this business?

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

Leading the charge were two entities.

One was the law firm Sullivan & Cromwell, abbreviated as S&C. FTX appointed it as the top law firm for litigation, debt recovery, and court dealings, handling essentially all legal matters. It received approximately $249 million, meaning partners billed up to $2,165 an hour.

The other was the consulting firm Alvarez & Marsal, which specializes in helping bankrupt companies manage their accounts. FTX's assets were scattered across over 130 related companies, requiring meticulous reconciliation, and this firm received about $306 million, even more than the law firm.

There was another amount often overlooked. In the bankruptcy case, creditors elect a committee to oversee the entire process. The lawyers and consultants hired by this committee also draw from the bankruptcy estate, totaling about $110 million.

Throughout American history, the most expensive bankruptcy cases were Lehman Brothers during the 2008 financial crisis, which cost about $6 billion. FTX's nearly $1 billion can also rank among the most expensive cases.

It's even more eye-catching in the crypto industry. Similarly bankrupt lending platform Celsius had a bill of $87 million in the first half of the year, while FTX surpassed $200 million in just the first seven months.

Why is handling bankruptcy so costly? The explanations from the management team and lawyers are the same:

The accounts are a complete mess.

FTX had almost no proper accounting records, and the money was scattered among over 130 related companies. To retrieve these funds, a large workforce is needed to review account by account, leading to 242 lawyers billing for the case within the first three months.

The messier the accounts, the more time needed, and because these professionals are billing by the hour, the invoices keep growing.

With such large bills, someone needs to investigate for discrepancies. The court appointed an independent cost reviewer, named Katherine Stadler, to meticulously check the invoices submitted by the law firms and consultants for overcharging or double-billing, and then recommend to the court whether to approve them.

The first batch she reviewed was for the first three months, totaling $88.8 million, recommending the court approve $85.1 million, which is the majority.

When she submitted her summary report in June 2023, the invoices for the first seven months already exceeded $200 million. Her assessment was that this figure is indeed staggering, but these people were dealing with a heap of mess and performed equally well.

Money was spent, and indeed things were retrieved. According to experts cited by Bloomberg, creditors today can recover 118% thanks to these lawyers and consultants who retrieved scattered assets.

No motivation to close the case

In the massive machinery of bankruptcy, chaos is never an obstacle; chaos is a material for production.

The more chaotic the accounts left by FTX, the more justified the liquidation team feels with their invoices. The trust's financial reports indicated that in just the first quarter of this year, operational expenses reached $85 million. This means that every morning when the restructuring team opens its eyes, regardless of how much asset recovery they achieve, nearly $1 million has already been deducted from the pool belonging to the creditors.

This daily expenditure of $1 million maintains a large and prolonged legal war of attrition.

As the bankruptcy case enters deeper waters, only difficult issues remain. First, there is a disputed claim of nearly $2 billion that the trust does not recognize, while claimants do not withdraw; each reconciliation and maneuver requires court appearances, evidence collection, and legal opinions submitted; then there are scattered litigation efforts, with the trust suing various entities and individuals who withdrew funds before FTX's collapse, with lawsuit after lawsuit, even after months of struggle only recovering a few million dollars, the litigation machinery cannot stop.

There was even an absurd interlude:

The trust once applied to the court to pause payments to creditors in 49 countries and regions, including China, due to “local legal restrictions,” involving approximately $800 million. After more than 70 strong objections, the trust quietly withdrew its application four months later. In this back-and-forth, the victimized creditors received nothing, but law firms and consulting advisors reliably clocked hundreds of hours of premium partner time in compliance paperwork.

The hourly billing system has led professional elites in business logic to have no motivation to expedite the case's closure.

In the traditional business world, time is a cost that companies must compress; but in the bankruptcy restructuring business, time itself is profit marked at a fixed price.

The most expensive mediocrity

If the high lawyer fees are visible bloodshed, then the bankruptcy team's “defensive mediocrity” in asset management is the greater hidden loss that the creditors swallow.

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

In the first half of 2024, the trust team responsible for managing the assets divested this stake in two batches at a price of about $30 per share, netting approximately $1.3 billion. Compared to the initial investment of $500 million, the restructuring team presented an impressive report in court, claiming to have “earned creditors $800 million.”

But in the logic of tech investing, this was a severely hasty exit.

Just as the liquidation team hurried to cash out and leave, the super wave of generative AI swept the globe. Anthropic soon secured a new round of heavy investments from tech giants, with valuation skyrocketing exponentially. Based on subsequent fair market valuations, the hastily sold shares have already multiplied in value several times, with potential value increases amounting to tens of billions of dollars.

This stake could have provided all creditors with more sufficient compensation or even fully covered inflation losses, was abandoned entirely before dawn broke.

Such an absurd contrast rarely appears in business history:

The once reckless gambler SBF, who had no internal controls and casually misappropriated client assets, by sheer chaotic intuition backed the today’s leading AI giants; while the professional army made up of the nation’s top bankruptcy lawyers and restructuring experts, out of an almost instinctual "hedging and avoiding responsibility," completed their hasty cash out just before the real lift-off.

For those in charge of bankruptcy pipelines, they do not need to bear any legal responsibility for "missing out"; their primary legal principle is "defensive hedging"; as long as they transform it into cash in the bank, completing the rigid payments on the face value, their work is above reproach.

This mediocrity and correctness within the system ultimately imposed an extremely expensive opportunity cost on creditors.

The ultimate winner in the revolving door

As invoices stretch and assets are discounted and cashed out, the most profound fissures in this bankruptcy drama ultimately hinge on the ethical roles of the liquidators themselves.

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

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

The creditors' anger is evident: The individuals now sitting at the judgment and liquidation table collecting exorbitant hourly rates, were precisely those who were seated next to the messy poker table back then.

S&C quickly applied to dismiss the charges on the grounds of being considered “disinterested parties” by the bankruptcy court. In the convoluted legal maze of bankruptcy restructuring, such litigation is very likely to be submerged once again in lengthy procedural reviews. Each minute spent on this review still translates into dollars on the invoice.

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

The instigator SBF counts his 25-year prison sentence at a federal prison; creditors, after more than four hundred long days and nights, finally await their delayed fiat repayment; while those who emerged virtually unscathed and profited immensely are the Wall Street elite team that walked in with briefcases.

They calmly dismantle the ruins, selling off the most imaginative assets, avoiding all potential professional risks, and promptly present service invoices close to $1 billion.

For the crypto world, FTX's collapse was a catastrophe; but for the bankruptcy liquidation industry, it was merely another perfect delivery of a billion-dollar deal.

SBF's story has come to a definitive end, but this profitable business surrounding the ruins will not easily wrap up as long as there are balances on the books.