How Much Is Too Much to Spend on FTX's Bankruptcy? (2023)

The legal fees for FTX’s bankruptcy process have already topped $200 million, a cost that is likely to grow.

One activist FTX victim is raising questions about those extraordinary costs, which pay for restructuring the allegedly fraudulent crypto exchange, and recovering victim’s funds from a dizzying array of recipients. Those costs are undeniably out of the ordinary, outpacing the cost of other notably complex bankruptcies by a variety of metrics.

That matters because the legal fees ultimately come out of the recovered funds that will be returned to FTX creditors, including retail depositors, at the end of the process.

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Defrauded FTX customers areowed $8.7 billionby the exchange, and the recovery of much of the missing money seems increasingly likely. But at the current pace, bankruptcy fees could eat up nearly 10% of what victims are owed.

The high cost of going broke

“The funds which are due to the creditors are being frivolously spent,” argues Sunil Kuvari, a former FTX customer.

Kuvari bases that claim on comparisons to other historical and recent bankruptcies. FTX, he found, is proving far more expensive than comparable proceedings, both in absolute terms and as a percentage of the underlying assets and liabilities.

“I thought, percentage wise, it should be similar to [the cost of unwinding] Celsius,” he says. “But by that metric, [creditors] are being overcharged by $30-$40 million per month.”

Celsius Network claimed$5.5 billion in liabilitiesat the outset of its bankruptcy, compared to the $8.7 billion FTX now owes its customers. But Celsius’ bankruptcy costs only ran to $87 million after six months. FTX’s costs have already topped $200 million in the same period.

Kuvari is a former finance professional who says he had about $2.1 million in assets on FTX when it collapsed. He is spearheading a class action lawsuit againstinfluencers and celebrities who touted FTX, and has become prominent among creditors. He’s very motivated to scrutinize the bankruptcy spending: the outsized costs of the bankruptcy could mean he loses an extra $100,000 or more.

Kuvari has beenringing alarmsabout bankruptcy costs followinga June 20 report by bankruptcy examiner Katherine Stadler, a lawyer tasked with overseeing the expense of the restructuring. In that report, Stadler recommended some cost reductions, but largely described the outsized costs as appropriate to the complexity of the situation.

If the FTX bankruptcy takes two years – the length of Enron’s bankruptcy – the restructuring team would be on track to bill roughly $800 million at its current pace. Enron’s bankruptcy cost $700 million, or just over $1.1 billion in 2023 dollars.

That would mean FTX’s bankruptcy cost about 3/4ths as much as Enron’s. But among Kuvari’s points is that Enron wasnearly 100 times the size of FTXin terms of revenue and employees.

See also:How Sam Bankman-Fried's 'Effective' Altruism Blew Up FTX| Opinion

FTX’s remaining and recovered assets totaled around $7.3 billion as of this month, while Enron’s totaled $110 billion, or nearly $190 billion in 2023 dollars. So Chief ExecutiveJohn Jay Ray III’sdebtor team at FTX is on track to charge around 75% of the Enron fees to untangle 4% as much in the exchange’s assets.

And while management of FTX was notoriously chaotic, Enron’s fraud revolved around comparable complexity: the creation of hundreds of spinoffs, intentionally hard to track and meant to conceal corporate debt, even from Enron's own auditors.

So why is FTX’s unwind costing so much relative to its size – and can those costs be reined in?

‘Frivolous’ – or just complex?

It’s probably imprecise to project the costs for the first six months of the FTX bankruptcy forward to its conclusion. Stadler’s fee examiner report, while acknowledging that proceedings “appear on track to be very expensive by any measure,” describes the initial phases of the recovery process as particularly chaotic and perhaps wasteful, but for defensible reasons.

“The Bankruptcy Code is explicit that reasonableness and necessity are to be measured at the time services are performed, not in hindsight,” Sadler wrote. “Some [fee] Applicants assembled teams that ended up being too big. Some firms deployed experts whose technical skill did not end up being needed. Others directed resources from other sectors of their organizations to fill gaps in their teams. The Fee Examiner cannot in good faith conclude that any of those approaches was wholly unreasonable in the moment.”

How Much Is Too Much to Spend on FTX's Bankruptcy? (1)How Much Is Too Much to Spend on FTX's Bankruptcy? (2)

SBF's chaotic approach to disposing of his customers’ money seems to have been improvised rather than strategic.

How Much Is Too Much to Spend on FTX's Bankruptcy? (3)How Much Is Too Much to Spend on FTX's Bankruptcy? (4)

This rough start implies that future costs will decline as the process rationalizes. Stadler emphasizes that the bankruptcy teams “will continue to refine their processes to identify and eliminate inefficiency and excess as the cases progress.” Creditors will want to watch future reports very closely to make sure that actually happens.

Sadler’s report does also advocate for better controls in specific aspects of the bankruptcy. She found that the bankruptcy teams were using a higher proportion of senior staff than usual, with associated higher costs. Sadler also pushed teams to reduce the number of people in meetings and attending hearings.

Most specifically, Sadler imposed negotiated reductions of 5%-10% in fee requests filed by both the law firm Sullivan & Cromwell, and the management consulting firm Alvarez & Marsal, on grounds including “excessive meeting attendance.”

But even after a reduction in its fee requests, comparisons to similar proceedings highlight Alvarez & Marsal specifically as billing more than usual. In fact, A&M are also part of the bankruptcy of another crypto blunder, and it is charging much less in that case.

“Alvarez & Marsal have been charging Celsius $1.7 million per month,” Kuvari found, “And charging FTX $11 million a month.” Similarly to the comparison with Enron, this means A&M is charging about six times as much on a bankruptcy involving only about 50% more liabilities. On a percentage basis, A&M took around 11% of fees in the Celsius bankruptcy, but is getting about 30% of the FTX fees.

A&M is responsible for a variety of tasks, notably including the identification and recovery of assets. This may go a long way to explaining the discrepancy in the fee rates, since former FTX CEO Sam Bankman-Fried seemed determined togive away his customers’ money as fast as possible, whether to family members,his favorite "charities,"or complete strangers. Hunting that money down, and fighting to claw it back, seems naturally labor intensive.

See also:Sam Bankman-Fried's Altruism Wasn't Very Effective| Opinion

A&M also helped develop accounting records in the case, and this again appears to be particularly complicated. Sadler described the state of FTX after its collapse as a “smoldering heap of wreckage” with many financial records simply missing. That echoedearlier statements by John Jay Ray III, who described the situation as even worse than Enron’s.

(We have reached out to A&M for comment on the numbers, and will update this story if we hear back from them.)

But Kuvari contests the idea that FTX’s bankruptcy is more complex than Enron’s.

“In fact, when I compared Enron to FTX, it’s like a dot. [FTX is] a company that has operated for three years. It had a maximum of 200 employees, and Enron had 20,000 employees.”

More important than scale, Kuvari argues that Enron’s fraud was just as opaque as FTX’s, and probably moreso.

“Enron had3,000 off balance-sheet SPEs,”or special purpose entities, Kuvari points out. These entities were specifically created, by veterans of finance, to hide liabilities from auditors and the public. By contrast, Kuvari says, FTX involved “just embezzlement of an exchange. Probably as simple as can be.”

The counterpoint is that while Enron covered its tracks cannily, it did at least keep records of those activities. In fact, some of the documents tracking the creation of Enron SPEs played a role in thecriminal prosecution of the ringleaders of that fraud.

Sam Bankman-Fried, it is increasingly clear, was not as smart as many believed, in any even slightly expansive sense of that term. His completely chaotic approach to disposing of his customers’ money seems to have been improvised rather than strategic. And it doesn’t seem to have helped him stay afloat longer than Enron’s puppet masters, who were engaged in fraudulent activity for the better part of a decade before being caught.

But SBF’s apparent ineptitude has certainly made life harder on those left to clean up his mess. While there’s plenty of reason to scrutinize the spending of the FTX bankruptcy team, what’s most clear is that Bankman-Fried himself is taking one last pound of flesh from FTX’s many victims before hefaces the music this October.


Will FTX users get their money back? ›

The bottom line: If FTX's assets are insufficient to cover all the claims against it, some creditors will not receive repayment. This means it is possible that account holders who lost money may not be made whole.

What will happen to FTX customers? ›

In theory, FTX's customers should get a cut of what's left of the company's assets at the end of the bankruptcy process. But so far, at least, it's not clear how much will be left to disburse. Pedestrians walk past an advertisement displaying a Bitcoin cryptocurrency token on February 15, 2022 in Hong Kong, China.

How much customer money did FTX lose? ›

FTX says it has identified a deficit of $8.9 billion in customer funds that it can't account for, the first time the bankrupt cryptocurrency exchange has pinned down how much money has gone missing.

When can I get my money out of FTX? ›

In December 2022, FTX Japan said its customers could start withdrawing money by February 2023. However, FTX worldwide placed a block on withdrawals after filing bankruptcy in November 2022, and there has been no clear instruction on how customers can withdraw their funds.

What happens to the funds in FTX? ›

Reuters reported that Bankman-Fried moved up to $10 billion in FTX customer funds to Alameda, whose assets were primarily held in the FTT token. This, coupled with CZ's announcement of selling Binance's stake in FTT, led customers to an increase in customer withdrawals and, thus, the bankruptcy of the entire FTX Group.

How much money does FTX steal? ›

Sam Bankman-Fried used money he stole from customers of his FTX cryptocurrency exchange to make more than $100 million in political campaign contributions before the 2022 U.S. midterm elections, federal prosecutors said on Monday. Ryan Chang reports.

Will crypto bounce back after FTX? ›

While Bitcoin has a history of bouncing back after crashes, recoveries have proven to take months or even years. And although Bitcoin officially recovered all of its post-FTX crash losses by mid-January 2023, it remains a highly volatile asset, and the fallout from the FTX crash is ongoing.

Will FTX go under? ›

FTX filed for bankruptcy on Nov. 11, 2022, after a surge of customer withdrawals earlier in the month. Then-CEO Sam Bankman-Fried admitted that the company didn't have sufficient assets in reserve to meet customer demand.

Has FTX recovered $7.3 billion in assets? ›

Collapsed crypto exchange FTX has recovered more than $7.3 billion in cash and liquid crypto assets during its bankruptcy process, FTX's legal team said in a bankruptcy court hearing Wednesday.

Who lost the most from FTX collapse? ›

Sequoia Capital likely suffered the greatest loss for an outside investor in the exchange with its $200 million investment, which peaked at $350 million in January 2022, according to data obtained by Forbes.

How much money was recovered from FTX collapse? ›

Bankrupt crypto exchange FTX has recovered $7.3 billion in assets.

How big is the FTX debt? ›

FTX, which owes $3.1 billion to its 50 largest creditors and at least $5 billion more to its nine million customers and smaller creditors, filed for bankruptcy November 11 between FTX and Bankman-Fried's hedge fund Alameda Research.

Who has returned FTX money? ›

New York Representative Hakeem Jeffries and Illinois Senator Dick Durbin have also reportedly donated funds they received to unnamed charities. These estimates suggest roughly an additional $5 million available to creditors following bankruptcy proceedings, solely from FTX's political contributions.

How do I claim money from FTX? ›

The portal can be accessed at The portal will allow customers to login using their FTX credentials to view historical transaction information and account balances as of the FTX Debtors' filing date of November 11, 2022.

Who stole money from FTX? ›

FTX co-founder Sam Bankman-Fried has been accused of stealing billions of dollars from FTX users to pay debts at his other firm, Alameda Research.

How much money was scammed with FTX? ›

The total assets missing was estimated at $8 billion. FTX investors filed a class action lawsuit against FTX and its celebrity endorsers on Nov. 15, 2022.

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