He made $25 million by betting on FTX bankruptcy claims
Written by Niamh Rowe, Fortune Magazine
Compiled by: Luffy, ForesightNews
When rumors began to circulate on the internet that FTX was in trouble, one of FTX’s clients, Louis d’Oringy, ignored them and turned his attention back to the friends he was entertaining at his Miami Beach apartment.
“Fake news,” he recalled. He put down his laptop and left his increasingly anxiouscryptocurrencyCommunity, went to the beach and relaxed for a day.
But a few hours later, the mood changed. He returned home and saw a tweet from FTX about customers’ withdrawal requests being rejected.
“Things were getting hectic,” he recalls. As the sun set through the floor-to-ceiling windows, the then 31-year-old wondered how things would play out.
“Then,” he recalled, “all of a sudden we couldn’t withdraw the money we had at FTX.”
D'Oringy is one of more than a million victims trying to recover lost funds from FTX, which has collapsed since the financial fraud of co-founder Sam Bankman-Fried was exposed.
“At the time, it felt like the end of the crypto world,” he said. “The outlook was very pessimistic, and no one thought Bitcoin would hit new all-time highs again.”
But incryptocurrencyIn his darkest moments, d'Oringy's mind began to shift.
Louis d'Origny has purchased more than 1,000 FTX bankruptcy claims since December 2022
“My view is that Sam didn’t have enough time to commit this fraud and lose money. I’m pretty sure they’ll be able to recover a significant amount of money,” he said.
D'Oringy saw an opportunity: Many creditors like him wanted to get at least some of their money back, but when bankruptcy was declared,exchangeThere is no clarity or guarantee on how the $8.7 billion shortfall will be financed. In other words, creditors are likely to sell their claims at a low price.
So what if they could hedge their claims?
Debt trading is a risk, but also an opportunity
D'Oringy had bought some of the Celsius bankruptcy claims with his former boutique fund Arceau, but he was new to the space, and most of the investors he knew didn't want to get involved with FTX—no one was willing to put up the money to buy the claims.
But within weeks of the Miami incident, d’Oringy began using his own money to buy FTX positions from hedge funds and request liquidations.
"We don't know anything more about the bankruptcy. We took a big risk, and I just said it and did it," d'Oringy told Fortune.
Trading bankruptcy claims is a high-risk, high-reward strategy. With the collapse of Lehman Brothers, Enron and General Motors, debt traders are believed to have made hundreds of millions or even billions of dollars from these once-giant companies. But more often than not, the claims may end up being worthless.
“The end result was much better than I thought,” he said.
When a company goes bankrupt, creditors face lengthy court proceedings with no guarantee of recovery of any portion of their claims. Instead, many choose to sell their claims immediately for cash to buyers willing to take the risk of seeing their claims’ value plummet, with the buyer’s loss depending on how much the bankruptcy administrator is able to collect.
Calculating the exact timing and value of claim trades has been complicated since FTX filed for Chapter 11 bankruptcy in Delaware District Court on Nov. 11, 2022. Industry traders told Fortune that some claim trades were conducted on online platforms, others were private transactions where buyers did not have to submit transfer applications immediately, creating delays, and some claim trades were simply reported as their own claims.
On Claims Market, the industry’s main online trading platform, more than $439 million worth of claims had been exchanged in 49 transactions as of March 28. Meanwhile, hedge funds had bought more than $2.3 billion worth of deeply discounted claims as of March 20, according to court records.
While the bankruptcy court has not yet set a specific date for creditors to be paid, it now appears likely that they will be paid in full. "It looks like customers are on track to be paid in full," Bankman-Fried told the Manhattan court at Thursday's sentencing.
When claims were first approved, creditors sold their claims at low prices. More than 60 claims with a total value of more than $1 million have been traded on the market - selling for about 10% in November 2022 and now as high as 93%, indicating growing confidence in repayment.
与此同时，两位了解债权交易情况的人士向《财富》杂志表示，据估计，由于加密货币价值上涨，以及 FTX 持有的人工智能初创公司 Anthropic 股份被以超过 8.8 亿美元的价格出售，这些债权的价值可能会超过其初始价值，达到 120% 至 140%。
A gamble with a return rate exceeding 700%
The appointment of John J. Ray III as FTX’s new CEO when it filed for bankruptcy also sparked interest in debt, debt buyers told Fortune. “He immediately started selling all the assets that were uncertain (price volatility), and institutional debt buyers like that because they don’t want Bitcoin,” d’Oringy explained.
According to data submitted in the FTX case report, FTX has recovered approximately $7 billion in assets to date, including liquidated cryptocurrencies, 38 properties in the Bahamas, and $2.6 billion in cash.
The estate includes approximately 59 million SOL and 21,482 bitcoins, which have been lost since the company filed for bankruptcy.TokenThey rose by about 1,000% and 3,43% respectively. FTX will sell 41 million SOL to institutional investors at a price of 68% below the current market price, worth about $7.65 billion as of the time of this article's publication. This angered some victims, including Sunil Kavuri, who criticized Bankman-Fried for "continuously lying that we would all be adequately punished" at the sentencing.
As of March 20, the Chapter 11 filing shows that d'Oringy had purchased about $29 million worth of claims. He said the claims were purchased with personal funds for $3.5 million: "This was a family office investment for me and some friends." The return on this investment is more than 700%.
d'Oringy bought the first claim during a Christmas reunion with his family. He recalls his parents' worried faces, as they teased him that the family might be broke by next Christmas because of his gamble. The claim, valued at nearly $3 million, was settled on Dec. 28, 2022, for the original value of 6%, according to a contract reviewed by Fortune.
So far, the buyers who stand to reap the biggest rewards from FTX’s remains are hedge funds that specialize in distressed debt. As of March 20, Attestor, Baupost, and FarXiaobai NavigationAllon led the race by buying more than $520 million, $518 million and $346 million in debt, respectively. The funds used other entity names, people familiar with the matter confirmed.
Another big player in this gamble, and a friend of d'Oringy's, 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 said his first trade was on Nov. 12, 2022, before the bankruptcy was officially filed. He spent about $240,000 to buy $8 million in claims (about 3% of its stated value), while another trade cost about $210,000 to buy $3.5 million in debt.
Debt trading is not easy
The current valuations are a far cry from what they were when bond buyers nearly faced disaster on April 27 last year.
During a Zoom call with debtors in Singapore, where d’Oringy was close to finalizing a $3 million debt purchase agreement, news broke that the IRS had filed a $44 billion claim against FTX, accusing it of tax evasion.
“You know, during the call, we were terrified,” he said. But he ultimately decided to buy the bond. “It was really, really scary.”
Although the IRS reduced the claim to $20.4 billion, creditors in this case would still face bankruptcy if no objection is filed. "We would get nothing," d'Oringy said.
However, FTX has launched a legal fight over the claim, asking the court to dismiss it: it would “likely indefinitely halt the debtor’s progress and any distributions to customers and other creditors.” In other words, since the IRS claim would leave the fraud victims out of pocket, it’s unlikely to happen, sources told Fortune.
In July, FTX launched its own public portal for customers to file claims. But in the early days of trading, there was limited information about which assets could be liquidated or how to verify claims. Many appeared to be crowdsourced through Twitter, and KYC was time-consuming and ad hoc, d’Oringy said.
“It’s really, really difficult to buy claims,” said Braziel, who said he purchased at least two or three claims that turned out to be fraudulent.
Because it was so quick to verify claims, d’Oringy bought 40 claims in his first year of trading. That gave him another idea: to speed up the due diligence process through automation. In December, he co-founded his own portal, FTX Creditor, which he describes as a “custom CRM, KYC, and due diligence solution,” which he says has reduced the verification process from days to 30 minutes. The company now has 14 employees across continents who answer creditors’ calls 24 hours a day.
The company, which specializes in claims under $100,000, aims to provide retail investors with a convenient way to complete sales over a 30-minute phone call without being tied up in lengthy trade confirmations.
Public records show that FTX Creditor has purchased nearly 1,000 claims worth about $100 million since December. Assuming the purchase price is 70% of the debt, that would mean the firm would make about $30 million in profit, according to market estimates — some of which could come from d'Oringy's earliest purchases.
But d'Oringy explained that the rising value of claims has slowed trading. Still, according to one contract viewed by Fortune, more than $6 million worth of claims were bought on the market this week alone, and Braziel is still buying claims at a discount to 70%.
D'Oringy has decided to continue running FTX Creditor after FTX, but once those claims are paid off, he'll take a vacation.
Was it calculated intelligence to put money into these claims? Perhaps. But in D'Oringy's view, these circumstances simply arose by chance. He used a word that was very different from intelligence: "luck."
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