The FTX Scandal: A Sober Look at the Company, the Fraud, and the Aftermath

The trial of Sam Bankman-Fried was, by all accounts, the neat and tidy conclusion to a chaotic story. A jury delivered a guilty verdict, a judge handed down a 25-year sentence, and the architects of one of history’s most spectacular financial implosions were held to account. The narrative arc felt complete. Now, as the legal scholars and experts gather at Fordham Law for a Live Podcast Recording to Unpack Sam Bankman-Fried Appeal and the Fall of FTX to dissect the appeal, it feels like the epilogue is being written—a final, academic post-mortem on the `ftx scandal`.

But this clean narrative, satisfying as it may be, obscures a far messier and, frankly, more instructive story. The real lesson of the `ftx fraud` isn't just about the hubris of one man. It’s about the machinery that grinds on after the collapse—the bankruptcy process itself. This is where the story shifts from a simple tale of crime and punishment to a complex case study in legal maneuvering, narrative control, and the pliable definition of what it means to be made "whole." While the public was focused on SBF’s rumpled suits and rambling testimony, the real action was unfolding in bankruptcy court, and the numbers tell a very different story than the headlines.

The official story of the `ftx bankruptcy`, as told by its CEO John Ray III, began with a single, potent image: a "dumpster fire." He testified before Congress about an "utter lack of record-keeping" and a "complete failure of corporate controls." This narrative was simple, effective, and painted a picture of heroic rescuers sifting through digital ashes. Yet, this portrayal was immediately contested by former employees. Caroline Papadopoulos, the controller for FTX U.S., found the characterization insulting, insisting that records and controls, while perhaps unconventional, did exist.

This discrepancy is more than just a squabble over semantics; it’s the first crack in the official narrative. It begs the question: was the situation truly an unprecedented black hole of information, or was it more valuable to the bankruptcy estate to frame it as such? The answer may lie with the law firm appointed to lead the proceedings: Sullivan & Cromwell. And this is the part of the record that I find genuinely puzzling. S&C had served as a primary legal advisor to `ftx company` before the collapse, even assisting with regulatory applications. For the same firm to then oversee the investigation into the company’s downfall presents a conflict of interest so profound it’s surprising it was ever approved. The U.S. Trustee, a bankruptcy watchdog, initially objected, citing "wholly insufficient" disclosures from the firm. Though the objection was later dropped, the fundamental question remains: how can a firm effectively investigate its own prior work and potential oversights?

The Arithmetic of a "Full" Recovery

The most glaring example of narrative versus reality is the estate’s triumphant declaration that creditors will be repaid "in full," with interest. On the surface, it’s a stunning achievement. Dig into the methodology, however, and the claim dissolves. The repayment isn't based on the value of customers' crypto holdings today, or even what they were owed in kind. Instead, claims are pegged to the U.S. dollar value of cryptocurrencies on November 11, 2022—the very day FTX filed for bankruptcy and the crypto market was at a catastrophic low.

Let's look at the numbers. Bitcoin was trading at around $17,000—to be more exact, the bankruptcy claim value was based on prices from that specific date. Today, Bitcoin has soared far beyond that level. A creditor who held one Bitcoin on the platform isn't getting one Bitcoin back; they're getting $17,000 in cash. They are being forcibly cashed out at the absolute market bottom, losing out on the entirety of the subsequent recovery. To call this being made "whole" is a statistical fiction. It fulfills a legal definition while completely ignoring the financial reality and opportunity cost for the victims.

While this was happening, the bankruptcy process itself became one of the most expensive in U.S. history. The legal and professional fees are approaching $1 billion (a figure that rivals the Enron bankruptcy costs), with partners at Sullivan & Cromwell billing up to $2,375 per hour. John Ray requested a bonus that was ultimately approved at $30 million. This isn't to say the work wasn't complex, but it creates a jarring picture: a recovery for creditors, funded by their own assets, that was systematically eroded by the very process designed to help them.

This ecosystem of second chances and lucrative clean-ups doesn't extend just to the lawyers. Consider Brett Harrison, the former president of FTX US. While his former boss, `sam bankman`, sits in prison, Harrison is back in the game, launching AX, a new crypto-style futures exchange. He's already raised over $17 million from prominent backers like `Coinbase` Ventures and Anthony Scaramucci. This is despite the fact that Harrison previously made false claims about FTX US deposits being FDIC-insured. The market, it seems, has a short memory for those in the executive suite, even as the customers they once served are left fighting over the dollar-denominated scraps of a crypto portfolio they can no longer access.

An Exercise in Value Extraction

The conviction of `ftx sam bankman fried` was a necessary public spectacle, a clear signal that outright fraud has consequences. But the bankruptcy process that followed was something else entirely. It was a masterclass in value extraction, where the definition of "recovery" was bent to serve a legal conclusion rather than a financial one. The narrative of a "100% payback" is a public relations victory built on a foundation of misleading mathematics. For the creditors who lost not just money, but their stake in a recovering market, the process was a second violation—a perfectly legal, court-approved liquidation of their future gains, all while the professionals overseeing it collected nearly a billion dollars for their trouble. The real story of FTX isn’t just the crime; it’s the cleanup. And the cleanup was very, very profitable for everyone except the victims.