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Investors are spending hundreds of millions of dollars on FTX bankruptcy claims, betting that the firm’s new leaders will recover the money that Sam Bankman-Fried misappropriated.
By David Yaffe-Bellany and Matthew Goldstein
David Yaffe-Bellany reports on the crypto industry, and Matthew Goldstein reports on finance.
After the FTX cryptocurrency exchange filed for bankruptcy last year, Thomas Braziel, an investor who specializes in collapsed businesses, started brokering an unusual kind of transaction: a market to profit from FTX’s downfall.
Mr. Braziel put one of his clients in touch with a large financial firm that had lost nearly $100 million when FTX went under. Last December, the firm agreed to sell its claim in the FTX bankruptcy — essentially an i.o.u. from the collapsed exchange — for 6 cents on the dollar, betting that it was better to collect some fast cash than wait years for the husk of FTX to start paying creditors back.
Then the market for FTX claims exploded. Mr. Braziel recently brokered the sale of a $19 million FTX claim for 68 cents on the dollar, collecting a nearly $100,000 commission, he said. Some claims are selling for more than 70 cents, as investors grow optimistic that FTX’s new leadership will recover a sizable portion of the roughly $8 billion that the founder, Sam Bankman-Fried, was convicted of stealing from customers.
“The market is insane,” said Mr. Braziel, a partner at the investment firm 117 Partners. “It’s so hot.”
The initial despair over FTX’s failure has given way to a strange afterlife for the bankrupt exchange: a trading frenzy that has intensified in recent weeks as major financial firms seek opportunity in the rubble of one of the worst business collapses in decades. The story of FTX has come full circle, as investors who once used the platform to place risky crypto bets now gamble on the company’s prospects in bankruptcy court — and funnel any gains back into the resurgent crypto market.
For speculators, the math is simple: They are betting that if they buy a $10 million claim for, say, 50 cents on the dollar, they will pocket substantial profits if more than $5 million is ultimately paid back by the bankruptcy estate. In total, $1 billion to $1.5 billion in FTX claims has changed hands since the bankruptcy began, according to Xclaim, a company that connects buyers and sellers.
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