FTX customers refunded, but bankruptcy traders emerge as biggest winners

FTX, a failed cryptocurrency exchange, is facing an unexpected outcome in its bankruptcy case. According to court records filed on Tuesday, the customers who lost money when the exchange collapsed in November 2022 are expected to receive all of their money back, and even more.

The total amount owed to these customers is around $11 billion, but the estate has managed to recover as much as $16.3 billion. This means that all claims will be repaid with interest.

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JUST IN: FTX says almost all customers of the bankrupt crypto exchange will get full refunds, CNBC reports.

— Watcher.Guru (@WatcherGuru) May 8, 2024

The CEO of FTX, John Ray, who took over from Sam Bankman-Fried, the current inmate serving a 25-year prison sentence, has been responsible for gathering the estate’s assets. Fortune reports that Thomas Braziel, a broker at 117 Partners, is impressed with Ray and his team’s success, stating that they “absolutely crushed it.”

How much will they receive?

The exact amount each customer will receive depends on the type of claim they filed, with some able to recover 142% of their initial holdings, while most will receive 118%. Although it is estimated that it will take several months for the payments to be made, the gains made in this bankruptcy case are both impressive and unusual.

The biggest winners in this situation are those who trade bankruptcy claims. After the collapse of FTX in late 2022, a few hedge funds and individual investors acted quickly and started buying claims for a fraction of their value before the exchange officially filed for bankruptcy.

Data from Claims Market, a platform for trading claims, shows that the bid price for these claims has risen from 10% to 101% as of Wednesday.

Moreover, hedge funds focusing on distressed debt, such as Attestor, Baupost, and Farallon, are poised to reap the most substantial profits from these claims. These funds, which have bought claims worth over $520 million, $518 million, and $346 million respectively, are currently leading the race.

This is rather remarkable…

FTX customers will not only be repaid in full, but they’re also going to be paid interest.

There is also a surplus of billions of dollars.

FTX will have as much as $16.3 billion in cash to distribute. It owes more than two million customers and… pic.twitter.com/MFlx6BkEMH

— Yashar Ali 🐘 (@yashar) May 9, 2024

According to people close to the matter, these funds have used alternate entity names. Louis d’Origny, the founder of FTX Creditor, a platform for buying claims, personally invested in a full recovery and is set to make a profit of over $25 million.

He expressed his surprise and satisfaction with the announcement, stating that Ray has sold “everything that wasn’t nailed down to the floor.” The success of this recovery can be attributed to the renewed crypto market, with Bitcoin’s value increasing by over 190% since the collapse of FTX in 2022.

This has led to an appreciation in value of the company’s crypto assets. Additionally, FTX’s shares in AI startup Anthropic have also increased in value and were sold for over $880 million. The company also holds 38 properties in the Bahamas and has recovered $2.6 billion in cash, according to a presentation filed as part of its case.

However, not all claimants are satisfied with these results. Some investors argue that the present-day value of their crypto tokens should be taken into consideration.

For example, investor Arush Sehgal, who had $4 million on the platform and was a previous member of the FTX unsecured creditors’ committee, told Fortune that Ray would have sold the estate’s assets at “market bottom prices” in September 2023 if it weren’t for the UCC’s intervention.

The damage done to the estate assets by John Ray has now exceeded Bankman-Fried’s original crime

Arush Sehgal

Last month, Bloomberg reported that the FTX estate sold two-thirds of its $2.6 billion in Solana tokens in a heavily discounted deal. Sources close to the matter told Bloomberg that the bankruptcy administrators overseeing FTX’s estate sold SOL at $64 per token, raising up to $1.9 billion for the estate. However, the token is currently trading at around $148.

This has caused some victims, including Sunil Kavuri, to criticize Bankman-Fried’s false promises of making everyone whole at his sentencing.

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