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Hongji Feng
Author
Hongji Feng
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Key Takeaways:
- FTX’s bankruptcy proceedings have resulted in extensive legal and advisory fees, making it one of the most expensive corporate collapses in recent years.
- The restructuring process has involved multiple law firms and financial consultants working to recover assets and organize creditor repayments.
- Despite the high costs, most creditors are expected to receive full repayment, an uncommon outcome in corporate bankruptcy cases.
- The case highlights ongoing legal disputes, including unresolved lawsuits and asset recovery efforts that could impact final creditor distributions.
- Rising bankruptcy costs in the crypto sector reflect broader challenges in financial oversight and regulatory enforcement.
FTX’s bankruptcy costs have reached nearly $1 billion, making it one of the most expensive Chapter 11 cases in U.S. history.
According to a Bloomberg report published on February 26, court records show that $948 million has been paid to legal and financial firms, with over $952 million in fees approved.
Ongoing Lawsuits and Asset Recovery Efforts in FTX Bankruptcy
Despite the high costs, most FTX customers are expected to recover 118% of their claims.
Such a recovery is rare in corporate bankruptcies, where creditors often receive only a fraction of what they are owed.
The case has generated huge fees for legal and advisory firms. Sullivan & Cromwell LLP, the company’s lead law firm, has received over $248.6 million, while financial consultant Alvarez & Marsal has been paid roughly $306 million.
Creditors’ representatives have collectively charged around $110.3 million in fees.
The total legal expenses for FTX exceed those of other collapsed crypto firms.
Celsius, BlockFi, Genesis, and Voyager Digital incurred a combined $502 million in legal fees—almost half of FTX’s bankruptcy costs.
FTX’s bankruptcy process is ongoing, with lawyers still sorting through the company’s financial records to locate additional assets for distribution.
Meanwhile, several lawsuits remain unresolved, including a major $1.8 billion claim against Binance Holdings Ltd.
John Ray III, who was appointed as FTX’s CEO after it filed for its bankruptcy, previously stated that he had never seen a company with such a lack of financial oversight. His firm has been paid over $8 million for its role in restructuring.
FTX’s case follows a broader trend of rising legal costs in corporate bankruptcies.
Court records show that Chapter 11 fees have increased significantly in recent years, consuming a larger share of debtors’ pre-bankruptcy assets.
Other high-cost bankruptcies include Lehman Brothers, which reached nearly $6 billion in legal fees, and Puerto Rico’s public debt restructuring, which has surpassed $2 billion.
Soaring Chapter 11 Expenses Challenge Creditor Interests
The scale of FTX’s bankruptcy costs raises broader questions about the sustainability of legal and financial services in corporate collapses.
As fees consume a growing share of recovered assets, creditors may increasingly scrutinize whether restructuring efforts genuinely serve their interests or simply prolong costly legal battles that benefit firms managing the process.
Beyond FTX, the trend of rising Chapter 11 expenses in the crypto industry signals deeper structural issues.
The lack of financial oversight in many digital asset firms has led to costly, drawn-out legal proceedings.
If regulatory frameworks fail to adapt, future crypto bankruptcies could follow a similar pattern, where excessive fees overshadow the recovery process and leave stakeholders questioning the efficiency of legal recourse.
Frequently Asked Questions (FAQs):
The huge fees are partly due to the complexity of tracking down billions in digital assets and cash across a disorganized network of accounts. The lack of proper records and corporate controls at FTX has necessitated extensive efforts by legal and financial advisors to locate and secure assets.
Despite the high administrative costs, asset recovery efforts have identified sufficient funds to cover customer claims due to increases in cryptocurrency prices since FTX’s collapse.
Legal fees in crypto-related bankruptcies can be massive due to the unique challenges of handling digital assets and the often complex, opaque structures of crypto firms. While traditional corporate bankruptcies also incur large legal costs, the novel issues presented by crypto assets can lead to higher expenses in these cases.
The FTX bankruptcy addresses the need for clearer regulatory frameworks in the crypto industry. Regulators may implement stricter compliance and monitoring requirements for crypto exchanges and related entities to prevent similar collapses and protect investors.
