Vulture investors who bought up bankruptcy claims from FTX could see huge returns (2024)

After cryptocurrency exchange FTX filed for bankruptcy in 2022, specialized distressed asset investors started buying up the company's debt. They stand to make big profits off the remains of FTX.


Since the collapse of cryptocurrency exchange FTX, much of the coverage has focused on the crimes and punishment of founder Sam Bankman-Fried. He was recently sentenced to 25 years in prison. But as Alexi Horowitz-Ghazi of our Planet Money podcast reports, FTX customers have been caught in a feeding frenzy over the remains of the bankrupt company.

ALEXI HOROWITZ-GHAZI, BYLINE: When FTX customer Bhagumshi Kannegundla heard that FTX filed for bankruptcy back in November of 2022, he found out two things - first, that all FTX accounts had been frozen and, second, that he had more than $170,000 worth of cryptocurrency on the platform.

BHAGUMSHI KANNEGUNDLA: I was just like, oh, my God, I think I'm going to lose everything.

HOROWITZ-GHAZI: But Bhagumshi soon learned he was now the owner of an FTX bankruptcy claim, basically an IOU that FTX was obligated to pay him back if and when they could recover enough money to do so. And he found out he was allowed to sell that IOU.

KANNEGUNDLA: I was just like, wait. There's a way to sell this toxic asset. I was like - I was in disbelief.

HOROWITZ-GHAZI: Here is how this works. Chapter 11 bankruptcy offers a company in distress a way to hit the pause button and regroup. The company comes up with a plan to either restructure or to sell assets and pay off as many debts as possible. And the company's creditors, the people who are owed money, are given claims. And because you can buy and sell these claims, some so-called distressed asset investors view bankruptcy as an opportunity.

THOMAS BRAZIEL: I kind of liken it to, like, economic dumpster diving.

HOROWITZ-GHAZI: Thomas Braziel brokers trades between bankruptcy claim buyers and sellers for a commission. He says that distressed investors are making a kind of bet that a bankrupt company may look more hopeless than they really are. So claims that start out cheap could rise in value. And at first, he says, the FTX bankruptcy looked pretty risky.

BRAZIEL: But I just sort of thought, like, you know, for the right price, we would stick our toes into the water on this.

HOROWITZ-GHAZI: So Thomas started digging online for valuable assets the FTX estate might be able to sell off. He finds PR announcements for big investments, sees that the company still has a lot of crypto. He thinks the FDX creditors may eventually get around $0.10 for every dollar they are owed. So he decides to start bidding at three to $0.06 on the dollar.

BRAZIEL: And I'm the only person even putting in a bid, so that's usually a good place to start.

HOROWITZ-GHAZI: The market quickly grew. And by the spring of last year, several big, traditional distressed investment firms started to get in on the action, helping to push the price up from $0.20 on the dollar to 30 to 50. And all the while, the FTX estate was finding assets.

BRAZIEL: All of 2023 was nothing but good news. Every time you'd wake up - oh, my gosh - they'd have this asset they didn't know about or they settled this for $100 million or they recovered that, and that's another $50 million. It's like, holy moly.

HOROWITZ-GHAZI: And lastly, the crypto market has seen a big rebound. By January of this year, the FTX estate announced it could cautiously predict it would be able to pay back FTX creditors the full value of their claims - 100 cents for every dollar they're owed. Lawyers for Sam Bankman-Fried use this news to try to argue for a lower prison sentence but were unsuccessful. Many argued that FTX customers will never be made whole because claim amounts were locked in during a collapse in crypto prices, and some customers have gone bankrupt in the meantime. As for distressed asset investors like Thomas Braziel, they could potentially see huge returns from the bankruptcy, as high as 10X for people who bought in early.

BRAZIEL: I think this is the biggest thing that ever happened since the invention of the whole idea of buying these.

HOROWITZ-GHAZI: As for Bhagumshi Kannegundla, the FTX customer from the top, he ended up selling his FTX bankruptcy claim worth around $170,000 for just $19,000. And he says he hasn't paid attention to the bankruptcy since.

KANNEGUNDLA: After I sold my claim, I don't even think about it. I felt like as if a big weight has been lifted off my shoulders.

HOROWITZ-GHAZI: Bhagumshi reinvested that money into crypto, which has made a lot of gain, but not enough yet to erase his FTX losses.

Alexi Horowitz-Ghazi, NPR News.

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Vulture investors who bought up bankruptcy claims from FTX could see huge returns (2024)


Did FTX customers get their money back? ›

Nearly all customers of FTX will get their money back, plus interest, after the cryptocurrency exchange imploded 17 months ago. FTX, which filed for bankruptcy protection in November 2022, said in a court filing Tuesday that between $14.5 billion and $16.3 billion would be available for distribution.

Is FTX still in business? ›

FTX was the third-largest cryptocurrency exchange in the world when it filed for bankruptcy protection in November 2022 after it experienced the crypto equivalent of a bank run. CEO and founder Sam Bankman-Fried resigned when the exchange collapsed.

Is FTX coming back? ›

FTX, technically, remains a company but its future is unclear. In early 2023, Ray said that he had formed a task force to explore reviving, the crypto exchange.

When did FTX offices close? ›

FTX was a leading cryptocurrency exchange that went bankrupt in November 2022, amid allegations that its owners had embezzled and misused customer funds. Sam Bankman-Fried, the CEO of the exchange, was sentenced to 25 years in prison and ordered to repay $11 billion.

How much FTX funds have been recovered? ›

Bankruptcy lawyers say they have collected $14.5 billion to $16.3 billion and are ready to distribute it to defrauded customers.

Why did investors pull out of FTX? ›

FTX collapsed and filed for bankruptcy in November 2022 after commingling of customer funds between FTX and its Alameda Research investment arm meant customers were unable to withdraw more than $8 billion in investments that had been used for other purposes.

How many customers did FTX have? ›

At its peak in July 2021, the company had over one million users and was the third-largest cryptocurrency exchange by volume.

How much was FTX worth at its peak? ›

At its peak, the cryptocurrency exchange was worth $32 billion and had high-profile investors like Sequoia Capital and BlackRock -- not to mention everyday investors who trusted FTX to hold their money.

What does FTX stand for? ›

FTX stands for "Futures Exchange." FTX was a cryptocurrency exchange that promoted the liquidity and transacting of coins and tokens. FTX allows users to connect their wallets, place trades, exchange digital currencies, enter into derivative contracts, or buy/sell NFTs.

Is there a future for FTX? ›

FTX, technically, remains a company but its future is unclear. In early 2023, Ray said that he had formed a task force to explore reviving, the crypto exchange.

Why is FTX collapsing? ›

Federal prosecutors said Bankman-Fried devised "a scheme and artifice to defraud" FTX's customers and investors beginning the year it was founded.

Who took over FTX? ›

John J. Ray III took over as CEO in November 2022 to shepherd what was left of the firm through bankruptcy. Within a week, the man who had previously overseen the liquidation of Enron had declared FTX the biggest mess he'd ever encountered.

Who is the green octopus at FTX? ›

The Green Octopus at FTX | On November 8, 2022, the FTX offices were abuzz with excitement; but today, they welcomed an unusual visitor. Samuel, a green octopus with a PhD in English Literature, had swum all the way from the deepest trenches of the Atlantic to join the team.

How much is FTX worth? ›

The live FTX price today is $1.88 USD with a 24-hour trading volume of $1.02M USD.

How is Coinbase different from FTX? ›

Does FTX or Coinbase offer better trading fees? If you're looking for FTX VS Coinbase Pro fees (or, rather, the fees of the standard Coinbase exchange platform), you should be aware of the fact that FTX offers far better fees than the aforementioned exchange. With FTX, your fees will range from 0,02% up to 0,07%.

Who bought FTX exchange? ›

Nov. 8: Binance founder and CEO Changpeng Zhao said his company had signed a letter of intent to buy FTX because the smaller exchange was experiencing a “significant liquidity crunch.” That deal would be contingent, however, on a look at the books at FTX. The price for bitcoin tumbles 13%.

Who almost bought FTX? ›

The sordid details of a company run amuck that emerged after its assets were seized would hamstring almost any business attempting a comeback, but there may also be different parameters for cryptocurrency exchanges. The rival crypto exchange Binance briefly explored acquiring FTX before it collapsed in late 2022.

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