How Did FTX End Up With $950 Million in Bankruptcy Fees

When a company blows up, you expect the people cleaning up the mess to get paid, but $950 million? That’s the price tag for untangling FTX’s dumpster fire of bankruptcy. Lawyers, accountants, and financial pros are cashing checks while the crypto giant’s customers are stuck waiting to see what they’ll get back. And here’s the kicker, some hedge funds that scooped up claims for pennies on the dollar are about to walk away filthy rich.

Breaking Down the $950 Million

The crypto behemoth’s bankruptcy is shaping up to be one of the most expensive since Lehman Brothers, and it’s costing nearly twice as much as other big crypto failures combined. Here’s where all that cash is going:

• Legal Fees ($400M+): Top-tier law firms like Sullivan & Cromwell, which charged over $2,000 per hour, have been leading the charge on navigating FTX’s complicated asset recovery.
• Financial Advisory & Forensic Accounting ($300M+): Firms like Alvarez & Marsal are digging into a mess of missing funds, asset tracking, and forensic audits.
• Other Professional Services ($250M+): Compliance monitoring, executive oversight, and PR crisis management are adding to the growing bill.

For comparison, Lehman Brothers’ bankruptcy cost $6 billion, but they had hundreds of billions in assets. The crypto giant? A fraction of that but the bills are stacking up fast.

Rolling the Dice on Crypto Payouts

The Bitcoin betting house’s estate has recovered roughly $7 billion in assets, but here’s the kicker, most of it is in non-crypto assets. About $3.4 billion is in crypto, while the rest includes cash, real estate, and equity stakes in various companies. Court filings suggest that FTX may be able to return 100% of allowed claims. Sounds great, right? Here’s the catch, payouts will be based on crypto prices at the time of bankruptcy (November 2022). Bitcoin was hovering around $16,000 back then. Today? It’s above $50,000.

So, if you had 1 BTC locked in FTX, you’re getting $16K in cash, not 1 BTC. Meanwhile, the crypto giant is still holding billions in crypto that has skyrocketed in value since then. Who’s loving this deal? Hedge funds claim at 10-30 cents on the dollar. They’re about to triple or quadruple their money, while retail investors take the loss.

Why This Cleanup Costs So Much

Crypto collapses aren’t like traditional bankruptcies. Here’s why this process is so expensive:

• A Financial Free-For-All: The crypto betting house didn’t just lack financial records; it barely had bookkeeping. Some assets had to be tracked down through Slack messages.
• International Headaches: The crypto giant was operating in multiple countries, making legal fights a nightmare.
• Forensic Deep Dive: Tracing billions in missing assets takes serious time and money.
• John Ray III to the Rescue: The guy who cleaned up Enron’s collapse took over as FTX’s CEO and called it the worst corporate failure he’s ever seen. His team only charged $8 million, but they played a key role in salvaging assets.

Oh, and let’s not forget the platform is still suing Binance for $1.8 billion, so there’s more yet to come.

Crypto’s New Reality Check

FTX’s mess didn’t just burn investors, it lit a fire under regulators. If you’re in finance, here’s what you need to know:

• The IRS is Tightening Crypto Reporting: Under the U.S. Infrastructure Investment and Jobs Act, brokers now have to report crypto transactions to the IRS. The crypto trading giant proved that even “regulated” platforms can implode, so expect even tighter rules for exchanges.
• GAAP Accounting for Crypto is Evolving: One major problem in FTX’s case? There is no standardized accounting for crypto assets. The FASB (Financial Accounting Standards Board) is working on new rules to ensure that companies holding crypto on their balance sheets account for it properly.
• Compliance Audits Are Becoming Mandatory: FTX had zero oversight, and that’s changing fast. Crypto platforms are now being pushed toward regular financial audits, and the SEC wants this to be required, not optional.

The House Always Wins

This bankruptcy is a textbook example of how financial disasters benefit those cleaning up the mess more than the people who lost money. Creditors might get their funds back, but only in outdated valuations. Meanwhile, nearly a billion dollars has already been spent on lawyers, accountants, and restructuring firms. For professionals in finance and accounting, the fallout from FTX is setting new precedents in crypto compliance, auditing, and regulatory oversight. The real question is whether these changes will prevent another bankruptcy or just make the next crisis even more expensive.Stay in the know with the latest financial news and insights—subscribe to our newsletter and never miss a beat!