FTX Claim Holder Takes Hedge Fund to Court—Will 150% Returns Tempt More To Join?

• Bankruptcy claimants are expected to receive 129% to 146% of their funds returned.
• Hedge funds have purchased billions in FTX bankruptcy claims.
• FTX creditors are to receive cash equivalents, not crypto returns.

A former FTX customer is suing a hedge fund, alleging the firm is cheating him out of additional gains.

This follows FTX’s gaining court approval for its reorganization plan, which will see up to 146% of funds returned to customers.

FTX Creditor Sues

According to Bloomberg , Nikolas Gierczyk alleges that hedge fund Olympus Peak shortchanged him after purchasing his $1.59 million claim in 2023.

Sold at a “substantial 42% discount”, the fund now stands to make a significant profit as the FTX bankruptcy reorganization plan is set to return 129% to 146% back to its customers.

According to his complaint, Gierczyk negotiated the right to additional recovery in the deal, but Olympus Peak reportedly refused to honor this. He notes that under the purchase agreement, the hedge fund purchased to buy any further distribution from the bankruptcy at that 42% rate. His lawyers wrote:

“However, Olympus Peak made clear that they would not be fulfilling their end of the bargain,”

Hedge funds purchasing up “distressed assets” is a common practice during bankruptcies, as it gives beleaguered customers a quick means to cash their claims. Naturally, hedge funds want to make a profit themselves and will bargain to buy up said claims at discounted rates.

Since the FTX collapse, “vulture investors” have hoovered up billions in FTX bankruptcy claims; with the latest reorganization plan, the hedge funds stand to make a killing in the proceedings.

More To Follow?

The FTX bankruptcy saga has taken many twists and turns, with one of the latest being the agreement to return up to 146% of customer funds.

That was a decision made this year. Now, there may be swathes of bankruptcy, regretting to have offloaded their claim too early.

Furthermore, they also could be looking at Gierczyk’s case and wondering if they should launch a lawsuit against whichever hedge fund they engaged with.

Of course, the validity of these potential lawsuits will differ depending on the purchase agreement. However, if other funds follow Olympic Peak’s playbook, they may carry some weight.

At a Loss

Regardless of the outcomes, FTX customers are still being shortchanged by the whole affair. Remember, creditors are to receive up to 146% of their assets in cash equivalents, not crypto.

Making matters worse, these cash equivalents will not represent the potential gains customers could have made in the years that followed if FTX had not fallen apart.

In the first week of Nov. 2022, Bitcoin (BTC) was trading at just over $20,000 with a market cap of $400 billion.

Today, BTC stands above $61,000, bearing a market cap of $1.21 trillion. The crypto market cap overall now stands at $2.22 trillion, more than double what it was at the time of FTX’s bankruptcy.