FTX Creditors Could Recoup 40% of their Investments
- Global investment firm Jefferies Group states that FTX creditors could recover up to 40% of their funds.
- Based on Jefferies’ projections, the possible net recovery rate for FTX creditors might vary from 10% to as high as 35%.
- Global Head of Distressed Debt Trading at Jefferies Group, Joseph Femenia, has formed a 5 person team to work on FTX.
- Femenia stated that these rates could change once fresh information regarding FTX‘s balance sheet becomes available.
Good news has come for the creditors of FTX, a bankrupt crypto exchange formerly led by Sam Bankman-Fried (“SBF”), who are still in shock from the unfortunate demise of the platform. As per a report from global investment firm Jefferies Group, the creditors could recover up to 40% of their funds that they have invested in the exchange, worth $32 billion prior to the collapse.
According to the Global Head of Distressed Debt Trading at Jefferies Group, Joseph Femenia, who spoke with The Block, there is still a ray of hope for FTX creditors, who may be able to recover 20% to 40% of their lost holdings.
It is important to note that Femenia has formed a five-person dedicated team to work on the issues related to the once-leading crypto exchange. He explained that these rates could change once fresh information regarding FTX’s balance sheet becomes available.
The executive estimated that FTX owes creditors between $10 billion and $13 billion. He calculated that 5% to 10% of the sum must be allocated to lawyers and other necessary administrators so they can handle the clients’ cases.
Femenia compared the situation with the Bernie Madoff’s multi-billion dollar Ponzi scheme where the victims were able to recover more than $14.5 billion but had to pay around 10% of the total sum or over $1.6 billion for administration fees.
This clearly indicates that, based on Jefferies’ projections, the possible net recovery rate for FTX creditors might vary from 10% to as high as 35%.
The FTX incident, which has been described as “one of the biggest financial frauds in American history” by the US prosecutors, has caused a major market downfall and left a large chunk of investors with ashes.
Some creditors would rather sell their claims now, accepting significant losses, than wait years to learn how much they might be able to get back through the bankruptcy proceedings.
Trading of these claims is already a thriving market. One company that claims to have completed or is close to completing several transactions is Jefferies. According to founder Thomas Braziel, distressed credit investor 507 Capital has bought a number of claims for between 5 and 6 cents on the dollar.
These buyers are betting that they can recover more than they spent for the claim and have the patience to wait for rewards to be made years from now. Interestingly, often these sellers include crypto hedge funds and other institutions with external shareholders and investors because they want to exit positions and reduce the tax blow.
The convincing statements by Femenia come at a time when the United States Department of Justice is investigating FTX founder Sam Bankman-Fried for allegedly sending funds out of the U.S.
Court documents reveal that the bankrupt crypto exchange owes its top 50 creditors more than $3 billion. Temasek, Tiger Capital, BlackRock, Thoma Bravo, Sequoia Capital, and other well-known companies are a few of the well-known names holding exposure to the former crypto giant.