Wall St. looks to buy rights to assets trapped on FTX

Wall Street brokers are circling the ruins of FTX, offering to pay the crypto exchange’s customers pennies on the dollar for the bankruptcy rights to their trapped cash and cryptocurrency on the platform, before looking to sell those rights to specialist hedge funds.

Investment bank Jefferies and brokers Seaport Global and BTIG are among a number of Wall Street firms trying to assess the potential value of the trapped assets, according to people — two for each firm — with direct knowledge of their plans.

Given the complex nature of the bankruptcy process, it could be years before any of FTX’s customers recover their funds, and they’re likely to receive only a small fraction of what they deposited. So the financial firms are competing to buy customers’ claims to those assets now at a discount and then profit when some portion of the funds are eventually turned over.

The practice is common in bankruptcy, allowing investors to get some of their money back sooner by passing on the rights to specialist firms willing to fight a legal battle in pursuit of profit.

Still, given the uncertainty of the bankruptcy process and even whether any of the FTX funds are obtainable, the going price for the claims is just a few cents on the dollar.

Seaport declined to comment. Representatives for Jefferies and BTIG did not immediately respond to requests for comment.

In the wake of FTX’s collapse, some trading has taken place on Claims Market, an online marketplace for bankruptcy claims run by Vladimir Jelisavcic at Cherokee Acquisition, a financial firm focused on bankruptcy. “We are buying claims,” Jelisavcic wrote on Twitter on Friday, offering to buy claims at 6 cents on the dollar and sell them at 10 cents.

Some specialist investors who had been offered the chance to buy claims said they were still working through the analysis required to understand if the trade was likely to be profitable.

One issue, they said, is whether assets that customers withdrew from the exchange in the days and weeks leading up to FTX’s bankruptcy filing could be recouped in the legal proceedings so that those customers would not have an advantage.

FTX filed for bankruptcy Nov. 11, after a run on deposits left the company with an $8 billion hole in its accounts. That has put FTX’s customers in a precarious position, with billions of dollars’ worth of assets trapped on the platform.

Before its sudden collapse, FTX was considered one of the most reliable companies in the freewheeling, loosely regulated crypto industry. It ran extensive marketing campaigns encouraging amateur investors to start buying cryptocurrency.

Now its implosion has effectively erased those people’s savings. The bankruptcy is the biggest of several financial collapses in a chastening year for the crypto industry. After a market crash this spring, two crypto lending firms, Celsius Network and Voyager Digital, filed for bankruptcy, setting off months of legal maneuvering over how their assets should be divided.

Not long before it filed for bankruptcy itself, FTX won an auction to buy Voyager’s remaining assets.

Meanwhile, Bank of America became the latest firm to cut its rating on the cryptocurrency exchange Coinbase, downgrading it to neutral from buy on Friday, citing concern about the broader fallout from the collapse of FTX. The move leaves Coinbase with 14 buy-equivalent analyst recommendations, its lowest number since August 2021, according to data compiled by Bloomberg.

“Coinbase likely faces a number of new headwinds over the near/medium-term due to the recent collapse of rival crypto exchange FTX,” Bank of America analyst Jason Kupferberg wrote in a note to clients.

Daiwa Securities cut its buy rating on the stock last week, adding to a rash of downgrades over the last few months. Analysts had been overwhelmingly bullish on Coinbase since its April 2021 direct listing, with nearly 80 percent buy recommendations as recently as mid-March.

The Washington Post contributed to this story.