Legal Missteps and Asset Mismanagement in Crypto Bankruptcy: The FTX Case Study

The collapse of FTX in November 2022 remains one of the most scrutinized events in crypto history. While the exchange's founder, Sam Bankman-Fried (SBF), has since claimed the firm was technically solvent at the time of its downfall, critics argue that legal missteps and poor asset management during bankruptcy proceedings exacerbated losses for stakeholders. This article examines how external legal counsel's decisions-particularly around asset liquidation and solvency claims-shaped the financial outcomes for FTX's creditors and investors.

The Solvency Debate: SBF's Claims vs. Critics

SBF has repeatedly asserted that FTX entered the 2022 liquidity crisis with $25 billion in assets and $16 billion in equity, sufficient to cover $8 billion in customer withdrawal demands, according to The Block. In a 15-page document released in September 2025, he accused the external legal team and new CEO John J. Ray III of "decimating" the firm's value by forcing it into bankruptcy. According to SBF, the legal team sold off assets-including a stake in AI startup Anthropic and investments in Robinhood-at below-market values, while discarding $7 billion in FTX's native token (FTT) that could have been preserved for stakeholders, as reported by Benzinga.

Critics, however, dispute these claims. On-chain investigator ZachXBT has argued that FTX's liabilities far exceeded its assets at the time of collapse, rendering the firm insolvent, according to ZachXBT's analysis. This debate underscores a critical question: Did legal counsel prioritize creditor interests, or did their actions accelerate value erosion?

Legal Strategies and Asset Liquidation

During the Chapter 11 bankruptcy proceedings, FTX's external counsel leveraged funds from its subsidiary, LedgerX, to support the broader bankruptcy process. LedgerX, which also filed for bankruptcy, released $175 million in capital initially earmarked for a crypto derivatives regulatory license, a move reported by Benzinga. This move aimed to secure partial repayment for creditors, as FTX owed its top 50 debtors $3.1 billion while holding only $1.24 billion in cash, according to Benzinga.

However, the legal team's asset liquidation strategy drew scrutiny. Court documents reveal that FTX Alameda sold $9.07 million worth of Solana (SOL) to Coinbase in 2025, a move seen as part of broader efforts to manage creditor repayments, according to a Coinotag report. Meanwhile, the estate still holds $8 billion in assets after repaying $8 billion in customer claims and $1 billion in legal fees, according to CryptoTimes. SBF argues these sales were executed at undervalued prices, reducing potential returns for stakeholders, as he told The Block.

Counterarguments and Legal Disputes

The legal team's actions have faced pushback from creditors and regulators. For instance, FTX has objected to a $1.53 billion claim by Three Arrows Capital (3AC), calling it "baseless" and arguing that 3AC's speculative losses were not FTX's responsibility. Similarly, celebrity endorsements-such as Shaquille O'Neal's $1.8 million settlement with investors-highlight the broader legal complexities of the bankruptcy.

Independent analyses remain mixed. While SBF's claims of solvency have reignited debates about liquidity vs. insolvency, court rulings have yet to validate or refute his assertions. A key challenge lies in reconciling FTX's internal financial records with the actions taken by external counsel, which critics argue were opaque and self-serving, according to CryptoTimes.

Financial Outcomes and Lessons for Crypto Governance

The FTX bankruptcy has yielded mixed financial outcomes. As of 2025, the estate has distributed $8 billion in customer claims but retains $8 billion in assets, including crypto holdings and real estate, per CryptoTimes. However, the value of these assets has been significantly reduced by the legal team's liquidation strategy. For example, the sale of FTT tokens-once worth billions-was criticized for failing to maximize returns, a point raised in coverage by The Block and others.

This case study underscores the risks of inadequate legal oversight in crypto bankruptcy. Unlike traditional firms, crypto exchanges often hold volatile, illiquid assets, making asset management and valuation highly complex. The FTX saga highlights the need for legal frameworks that balance creditor interests with market stability, particularly in a sector prone to rapid value swings.

Conclusion

The role of external legal counsel in FTX's bankruptcy remains contentious. While SBF's claims of solvency and mismanagement have not been definitively proven, the legal team's decisions-such as asset sales at below-market prices-have undeniably impacted investor returns. As crypto continues to evolve, the FTX case serves as a cautionary tale about the importance of transparent, stakeholder-focused legal strategies in high-stakes bankruptcies.