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When rumors began swirling online that FTX was in trouble, one of the crypto exchange’s customers, Louis d’Oringy, took no notice, turning his attention back to the friends he was hosting at his Miami Beach condo.

“Fake news,” he recalls saying. He turned away from his laptop, leaving behind the increasingly distressed crypto community for a day at the beach.

But within hours, the mood had shifted. He returned home to tweets about denied withdrawals.

“Things had gotten more hectic,” he recalls. As the sun set through his floor-to-ceiling windows, the then-31-year-old wondered how this was going to go down.

“And then,” he recalls, “we couldn’t withdraw our money.”

D’Oringy is one of over a million or so victims trying to claw back lost funds from FTX, which imploded once the financial fraud of cofounder Sam Bankman-Fried came to light.

“At the time, it felt like the end of crypto,” he said. “It was very doom and gloom. Nobody thought that Bitcoin would get to an all-time high ever again.”

But in crypto’s darkest hour, the wheels of d’Oringy’s mind started turning.

“My view was that Sam didn’t have enough time to perpetrate this fraud and to lose every single dollar. I was pretty convinced that they would be able to claw back a lot of money,” he said.

D’Oringy spotted an opportunity: Creditors like himself wanted at least some of their funds back, but there was no clarity—nor guarantee—over how the exchange could raise the $8.7 billion combined shortfall at the time bankruptcy was declared. In other words, creditors would likely sell their claims for cheap.

So what if he hedged his bets?

Claim jumpers

D’Oringy had bought some Celsius bankruptcy claims with his own previous boutique fund, Arceau, but was relatively new to the space. And most investors he knew didn’t want to go near FTX—no one wanted to front the capital to start buying up these claims.

But within weeks of that day in Miami, d’Oringy began using his own money to buy FTX positions for a few cents on the dollar from hedge funds under mandates to liquidate.

“There was no information whatsoever available on the bankruptcy. We took a big risk. I just put my money where my mouth is,” he told Fortune.

Trading bankruptcy claims is a high-risk, high-reward tactic. With the bankruptcies of Lehman Brothers, Enron, and General Motors, claims traders are believed to have made hundreds of millions, if not billions, of dollars picking clean the bones of those once-mammoth firms. But other times, claims end up worthless.

“It ended up being much better than I ever imagined,” he says.

When a company goes bust, creditors face a lengthy bankruptcy process in court, with no guarantee as to what percentage of a claim will be repaid. Instead, many opt to sell theirs immediately for cash to a buyer willing to risk the claim plummeting in value depending on how much the overseers of the bankruptcy are able to recover.

Calculating the exact timeline and value of claims traded since FTX filed for Chapter 11 bankruptcy in the District Court of Delaware on Nov. 11, 2022, is complicated. Some are traded on online platforms, while others trade hands privately, and buyers aren’t required to file the transfer immediately, creating a lag, while others simply report it as their own claim, traders in the space told Fortune.

Over $439 million worth of claims have been exchanged across 49 trades on the industry’s dominant online trading platform, Claims Market, as of March 28. Meanwhile, hedge funds have bought over $2.3 billion worth of steeply discounted claims, according to court records as of March 20.

While the exact date creditors will be repaid by the bankruptcy court remains undetermined, it now looks likely they could be fully remunerated. “It looks like customers will hopefully be paid in full,” Bankman-Fried told a Manhattan court at his sentencing on Thursday.

When claims were first awarded, creditors were giving them up for cheap. Over 60 claims valued at over $1 million have been traded on Claims Market—sold at roughly 10% of their value in November 2022 and now going for as much as 93%, indicative of growing confidence in repayment.

Meanwhile, others are estimating the claims could exceed their initial value and be worth closer to 120% to 140%, two people close to the sales told Fortune, due to the rising value of crypto and the sale of shares in the AI startup Anthropic for more than $880 million.

The process

The appointment of John J. Ray III as the FTX’s new CEO when bankruptcy was filed also raised interest in the claims, buyers told Fortune. “He immediately started a process by which he would sell everything that wasn’t nailed down to the floor, which institutional claim buyers love because they don’t want Bitcoin,” d’Oringy explained.

FTX has recovered about $7 billion in assets so far, including from liquidated cryptocurrencies, 38 properties in the Bahamas, and $2.6 billion in cash, according to data in a presentation filed as part of its case.

The estate held about 59 million Solana tokens and 21,482 Bitcoins, and those have since gained some 1,000% and 343%, respectively, since the company filed for bankruptcy. FTX will sell 41 million Solana tokens, worth about $7.65 billion at the time of publication, to institutional investors at a 68% discount of its current market price. This has outraged some victims, including Sunil Kavuri, who criticized Bankman-Fried’s “continuous lie that we will all be made full” at his sentencing.

Chapter 11 filings, as of March 20, show d’Oringy had bought about $29 million worth of claims. They were bought for $3.5 million with personal funds, he says: “A family office investment of me and some friends.” That’s a return of more than 700%.

D’Oringy was with his family for Christmas when he bought his first claim. He recalls the worried faces of his onlooking parents, who teased him that the family may themselves go bankrupt by next Christmas as a result of his plan. Worth almost $3 million, a claim was exchanged on Dec. 28, 2022, for 6% of its value, according to the contract viewed by Fortune.

The buyers so far set to make the largest returns from FTX scraps are hedge funds specializing in distressed debt. As of March 20, Attestor, Baupost, and Farallon, which had each bought claims worth over $520 million, $518 million, and $346 million, respectively, are leading the race. The funds have used alternative entity names confirmed by people close to the matter.

Another big name in the space, and a friend of d’Oringy, is Thomas Braziel, a bankruptcy claim broker at 117 Partners who buys claims on behalf of some of the largest hedge funds in the market. Braziel says his first trades were on Nov. 12, 2022, before the bankruptcy had been officially filed. He paid about $240,000 for an $8 million claim (about 3% of its stated value) and about $210,000 for a separate $3.5 million claim (6%).

‘Very, very scary’

The current valuations are a far cry from April 27 of last year when disaster nearly struck for the claims buyers.

On a Zoom call with debtors in Singapore, d’Oringy was about to close a deal on a $3 million claim at 25%. While on the call, news broke that the Internal Revenue Service had filed a $44 billion claim against FTX alleging unpaid taxes.

“During that call, you know, we got spooked,” he says. But he decided to buy the claim regardless. “It was very, very scary.”

While the IRS reduced that claim to $20.4 billion, if unchallenged, it still would mean game over for creditors in such a scenario. “We’re getting zero,” d’Oringy says.

However, FTX has entered into a legal battle over the claim, asking for a court dismissal: It would “threaten to halt the debtors’ progress and any distribution to customers and other creditors indefinitely.” In other words, as the claim would leave fraud victims out of pocket, it’s unlikely to materialize, sources told Fortune.

In July, FTX opened its own—somewhat clunky—public portal for customers to file claims. But in the early days of trading, there was limited information available on what assets could be liquidated or how claims would be validated. Many appeared crowdsourced from Twitter, with KYC conducted in a time-consuming and somewhat ad hoc manner, says d’Oringy.

“It was really, really hard to buy claims,” says Braziel, who said he bought at least two or three claims that proved to be fraudulent. 

Due to the pace it took d’Oringy to authenticate claims, he bought 40 in his first year of trading. This gave him another idea: To speed up the due diligence process through automation. In December, he cofounded his own portal, FTX Creditor, which he describes as a “custom CRM, KYC, and diligence solution,” which has narrowed the authenticating process from days to 30 minutes, he says. The company now has 14 employees spanning continents, who take calls with creditors 24 hours a day.

Specializing in claims under $100,000, the company’s aim is to provide retail investors with an accessible way to close sales on a 30-minute call, to avoid locking them into lengthy trade confirmations.

Since December, FTX Creditor has bought nearly 1,000 claims worth roughly $100 million, public records show. Assuming a purchase price north of 70%, based on market estimates, that could mean a profit for the firm of about $30 million—a cut of which d’Oringy presumably adds to what he pocketed buying his earliest claims.

But the rising value of the claims has slowed their trading a bit, d’Oringy explained. Still, just this week, over $6 million worth were purchased on Claims Market, and Braziel is still buying claims at 70%, according to a contract seen by Fortune.

D’Oringy is resolute about staying in the business of bankruptcy post-FTX, but once these claims are repaid, he’s first going on a vacation.

Did throwing his money behind these claims come down to calculated ingenuity? Perhaps. But in d’Oringy’s eyes, the conditions that unfolded were merely serendipitous. He used a word very different from ingenious: “luck.”

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