Why This FTX Victim Is Bullish on Its Relaunch Plans

For the victims of FTX’s collapse, the question isn’t whether they’ll eventually regain the assets that were lost on the exchange; the question is how much they’ll be able to recover after the costs of the bankruptcy are accounted for.

“If you asked me at the very beginning… ‘Do you think this is going to be one of the most expensive bankruptcies in US history? I would say yes,’” said Travis Kling, who lost his crypto fund, Ikigai Asset Management, in FTX’s collapse. “There's a ton of fraud and it's magic Internet money. And none of these service providers know anything about magic Internet money.”

Yet the scale of the cost has led to some concern for observers. If FTX’s bankruptcy process takes as long as Enron’s, which was also overseen by FTX’s newly installed CEO John Ray III, it may cost over $800 million by the end — nearly 10% of the $8.7 billion owed to customers. Kling jokingly described the way the world looks at Ray as, “the Kobe Bryant of bankruptcies” and highlighted the fact that much of the legal fees draining the FTX estate are going to the legal counsel Ray selected in the firm Sullivan & Cromwell.

In a new interview, Coinage Host Zack Guzmán spoke with two victims of FTX’s collapse: Kling and a pseudonymous crypto investor known as Mr. Purple, who has professional experience in the bankruptcy process. One question we had: What did they make of the proposal to restart the FTX exchange for international customers?

Kling estimates the cost might be worth the chance of a greater recovery, even if it costs the creditors $0.02 on every dollar of lost funds. “The likelihood that you pick up $0.05, $0.10, $0.15, you know, something like that I think is, you know, quite attractive relative to spending $0.02 to kind of get 2.0 out the door because it's important for people,” Kling said. “When I look at it from that lens, it's an incredibly attractive bet. It's like a no-brainer from a creditors perspective.”

Mr. Purple had other complaints about the debtors’ handling of the bankruptcy process, though, and he’s not the only one raising eyebrows at the sheer cost so far. 

“They have yet to produce what's called a monthly operating report, an MOR.... An MOR is typically what you’d report financial-wise on an unaudited monthly basis: income statement, balance sheet, cash flow, some commentary around operations, what they're doing [regarding the] monetizing of assets, what have you,” said Mr. Purple. “Most bankruptcies file one of those within three months of filing bankruptcy. Not having one of those and not having a petition date balance sheet filed with the court is very abnormal.”

Kling also stated that the debtors’ attempt to liquidate valuable FTX stakes in companies like Anthropic AI, a hot rising challenger to ChatGPT, have given him pause.

“I think you really can make a really good argument that these guys are not the right guys to be liquidating this portfolio…Why would you be selling crypto assets when Jay Powell is raising interest rates? That makes zero sense,” said Kling. “Fast forward 12, 18, 24 months from now and a bunch of this stuff could be worth tons more than it's worth right now…you can end up making $0.15 back to creditors just on the Anthropic position.”

Mr. Purple, for his part, gave the current team steering the FTX bankruptcy process a failing grade.

“If I'm going to judge Sullivan & Cromwell and John J. Ray from my purview of being someone who's seen these things in bankruptcy, I would give them a very low grade,” he said. “Because you can say, ‘Oh, this is crypto, it's difficult,’ but it's not that difficult, right? It was an operating company.”

However, given the current struggles facing Binance, FTX’s largest would-be competitor if it were to relaunch, Kling believes FTX customers should feel optimistic about their prospects to see a somewhat significant return on their claims. Binance is facing lawsuits from both the CFTC and the SEC, and a possible probe by the Department of Justice.

“They are in a Category-five shitstorm with US regulators – not [just] US regulators, regulators all over the world,” Kling said. “So this is a very attractive competitive landscape to come in and say, ‘Look, we're going to be more transparent, more trustworthy than anything that this landscape has ever seen before.’”

Coinage NFT holders can watch our full conversation with Travis Kling and Mr. Purple, in the video above. To support our community-owned outlet, own it with us, and unlock other exclusive benefits, mint one of our Membership Passes today! Chat with Coinage in our Discord.

Disclosure: Alameda Ventures, included in the FTX bankruptcy, is one investor among many in Trustless Media, the production company behind Coinage.