Hedge funds made a killing on FTX—Then it got complicated

livemint.com:

The FTX bankruptcy was looking like a hedge-fund trade for the ages, set to make hundreds of millions of dollars for intrepid vulture investors. That was before things got messy.

Hedge funds and other distressed investors rejoiced last month when bankruptcy managers said the corporate carcass of FTX, Sam-Bankman Fried’s collapsed crypto exchange, had enough assets to more than make its creditors whole.

Since FTX’s 2022 implosion, hedge funds had scooped up the rights to customers’ frozen accounts for pennies on the dollar, with five firms alone buying claims with a combined face value of about $2.4 billion. That meant a huge payday was in store.

But collecting these winnings won’t be straightforward. Investors are mired in legal battles with some of the original owners of the claims. They allege those former FTX customers abruptly reneged on trades and are suffering from an age-old affliction: seller’s remorse.

The FTX case has thrust investment firms, some for the first time, into the Wild West of crypto. Compared to typical bankruptcy cases—where investors buy claims from relatively staid corporate creditors—firms this time are instead cutting deals with crypto traders.

“We have sellers from all over the world that are interfacing with buyers and the bankruptcy court for the first time and have never experienced a U.S. Chapter 11 case," said Andrew Glantz, chief strategy officer of Xclaim, a platform that has facilitated more than $200 million of FTX claims transactions.

The core problem underlying this and other disputes: FTX claim values have jumped as the prospect of a larger eventual payout has grown, thanks in part to a fierce rebound in crypto prices. That means many FTX clients who sold quickly missed out on