Hedge Funds Go Bargain Hunting with FTX Creditors

Hedge funds are buying the legal rights to FTX-frozen accounts for pennies on the dollar.
April 9, 2024
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Image Credit: Bloomberg

Sam Bankman-Fried (SBF), the founder of the FTX crypto exchange, was sentenced to 25 years in prison last month for misappropriating billions of dollars of customer funds and defrauding investors.

While the criminal proceedings against SBF are finally over, the fight over the recovery of customer funds continues.

FTX’s bankruptcy estate says it will be able to settle many creditor claims in full, which seemed unlikely when the firm collapsed, but there is a catch.

FTX plans to return funds to customers based on the cash value of their crypto in Nov. 2022, when FTX filed for bankruptcy. The plan would effectively rob customers of gains in their crypto holdings–Bitcoin is trading at over $70,000, 4x higher than its Nov. 2022 price of $17,000.

It has also been 16 months since FTX froze all accounts. The delays have made it difficult for financially strapped individuals to keep waiting.

As a result, hedge funds and other wealthy people with less need for immediate liquidity have been buying the legal rights to FTX-frozen accounts for pennies on the dollar. One account holder sold the legal rights to his FTX account to famed NYU Stern School of Business professor and podcast host Scott Galloway through a broker for 35 cents on the dollar. Another investment firm sold $40 million locked in their FTX account to another hedge fund for 16 cents on the dollar. There have been thousands of other customers who have followed a similar path.

In the case of FTX, customers will never be made “whole.”

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