FTX Hedge Fund Owes Creditor for Discounted Claim

FTX Customer Sues Hedge Fund Over Underpayment in Bankruptcy Claim

An FTX customer named Nikolas Gierczyk, based in California, has filed a lawsuit against Olympus Peak, a hedge fund that purchased his claim in the bankrupt Cryptocurrency Exchange. Gierczyk alleges that he was underpaid by Olympus Peak and is seeking over $1 million from their agreement. He sold his $1.59 million claim to the hedge fund last year at a discount of 42%.

Now, Gierczyk claims that Olympus Peak owes him a larger Payout following the approval of FTX's bankruptcy reorganization plan, which is expected to repay customers between 129% and 146% of the value of their claims.

Legal Action in Federal Court

According to the complaint filed in federal court in Manhattan on Thursday, Gierczyk had negotiated an explicit right to additional recovery in his agreement with Olympus Peak. However, he alleges that the hedge fund has failed to honor this provision. Olympus Peak has not responded to requests for comments from Decrypt.

Hedge Funds and Distressed Assets

It is quite common for hedge funds to purchase claims for distressed assets at a discount. This allows the claimants to receive a quick payout while the hedge funds have the opportunity to profit from the bankruptcy process in the long run. The funds often end up making more than what they paid for the claim.

In Gierczyk's case, he claims that Olympus Peak had agreed to buy from him, at the same discounted rate of 42%, any excess distribution from the bankruptcy. The purchase agreement included a clause that stated how the excess amount would be handled.

FTX Bankruptcy and Excess Funds

FTX, the bankrupt Cryptocurrency exchange, has managed to accumulate billions of dollars more than required to cover customer losses from its collapse in November 2022. The surplus is mainly attributed to the strong performance of the Crypto Market over the past year.

A bankruptcy judge recently approved FTX's restructuring plan, allowing the firm to proceed with redistributing approximately $16 billion to stakeholders.