The FTX bankruptcy and the vulture investors who might profit : Planet Money For the last year and a half, the story of FTX has focused largely on the crimes and punishment of Sam Bankman-Fried. But in the background, the actual customers he left behind have been caught in a financial feeding frenzy over the remains of the company.

On today's show, we do a deep dive into the anatomy of the FTX bankruptcy. We meet the vulture investors who make markets out of risky debt, and hear how customers fare in the secretive world of bankruptcy claims trading.

This episode was hosted by Alexi Horowitz-Ghazi and Amanda Aronczyk. It was produced by James Sneed and Sam Yellowhorse Kesler. It was edited by Jess Jiang, and fact-checked by Sierra Juarez. It was engineered by Cena Loffredo. Alex Goldmark is Planet Money's executive producer.

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FTX and the Serengeti of bankruptcy

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In this episode, we mention an AI company called Anthropic. We should say they are a sponsor of NPR.




These days, when most people hear about the cryptocurrency exchange FTX, they think of one of the great financial meltdowns of the 21st century. But there is this huge other part of the story about the obscure corner of the financial world that feeds off of disasters like this. To tell that story, we're going to start with someone named Bhagamshi Kannegundla. In early 2022, he had just opened up an account with FTX.

BHAGAMSHI KANNEGUNDLA: The platform was legit. It was really easy to follow, really easy to do stuff. Your transaction fee was very low. I mean, it was great.

ARONCZYK: Bhagamshi had found out about the platform the way a lot of people did, through a Super Bowl ad starring comedian Larry David.


UNIDENTIFIED ACTOR: (As character) It's FTX. It's a safe and easy way to get into crypto.

LARRY DAVID: (As Larry David) Eh, I don't think so. And I'm never wrong about this stuff.

KANNEGUNDLA: I was like, oh man, Larry David's hilarious.

HOROWITZ-GHAZI: Yeah. Who doesn't love Larry?

KANNEGUNDLA: Exactly, exactly. I mean, come on.

ARONCZYK: Bhagamshi works in IT, and he is a big believer in blockchain technology. But he says for investing, he just wanted an easy way to buy and sell crypto without having to deal with the blockchain stuff himself.

HOROWITZ-GHAZI: Over six months or so, Bhagamshi built up over $200,000 worth of Bitcoin and Ether and other crypto in his FTX account. And then one day in early November, he started to hear some unsettling news.


UNIDENTIFIED NEWSCASTER #1: Chaos in the cryptocurrency market. FTX, one of the biggest players in the digital money markets, is now on the verge of bankruptcy.

UNIDENTIFIED NEWSCASTER #2: Over the weekend, speculation arose about the solvency of FTX.

UNIDENTIFIED NEWSCASTER #3: Calling into question whether this was all a house of cards.

UNIDENTIFIED NEWSCASTER #4: For several days now, cryptocurrencies have been in a freefall.

UNIDENTIFIED NEWSCASTER #5: When you use the word collapse in the financial world, you're talking really serious stuff.

ARONCZYK: All of a sudden, there are allegations that FTX's founder, Sam Bankman-Fried, and his colleagues, may have been using FTX customer deposits - the money that people like Bhagamshi had put on the platform - to make risky investments. Now there seem to be billions of dollars missing from the company's books.

KANNEGUNDLA: I was just like, oh, my God. This looks like it's a Ponzi or something, in my head, I was thinking.

HOROWITZ-GHAZI: At that point, you were like, this smells like foul play?

KANNEGUNDLA: This smells really, really bad (laughter).

HOROWITZ-GHAZI: Bhagamshi started trying to get his money out of FTX, along with a ton of other people. But then the company stopped allowing customer withdrawals altogether.

ARONCZYK: And just nine days after all of this started, Sam Bankman-Fried signed over his control of the company to a new emergency CEO, who almost immediately filed for bankruptcy.

HOROWITZ-GHAZI: Do you remember where you were when you heard that they were declaring bankruptcy?

KANNEGUNDLA: I was in the gym working out, and I was just, like, so depressed, so then I worked out even harder that day (laughter).

HOROWITZ-GHAZI: You've got to make your gains somehow.

KANNEGUNDLA: Exactly, exactly. Yeah. It was a very, very sad workout day (laughter).

ARONCZYK: Bhagamshi had managed to get some 40 or $50,000 worth of crypto out of FTX before his account got frozen, but he still had more than $150,000 locked up inside. It seemed to Bhagamshi that FTX was going down in flames and that it was bringing the crypto market down with it.

KANNEGUNDLA: I was just like, oh, my God, I think I'm going to lose everything.

HOROWITZ-GHAZI: For Bhagamshi, his FTX holdings were starting to feel something like toxic assets. They seemed like they might be worthless.

KANNEGUNDLA: At that time, I was in the lowest point in my life, OK? And I was just thinking to myself, what the hell can I do with these toxic assets? I had no clue what to do with them.

ARONCZYK: So he starts poking around the internet for a way to get any sort of value out of his frozen FTX account when he stumbles across this online marketplace called Xclaim.

HOROWITZ-GHAZI: He gets on the phone with someone from Xclaim, who explains the new situation. Now that FTX has declared bankruptcy, Bhagamshi owns a bankruptcy claim - basically an IOU - that FTX is obligated to pay him back if and when they can recover enough of the missing money to do so. And then, the agent explains, Bhagamshi can actually sell that IOU.

KANNEGUNDLA: I was just like, wait, there's a way to sell this toxic asset? I was like - I was in disbelief.

HOROWITZ-GHAZI: Hello, and welcome to PLANET MONEY. I'm Alexi Horowitz-Ghazi.

ARONCZYK: And I'm Amanda Aronczyk.

HOROWITZ-GHAZI: For the last year and a half, the story of FTX has focused largely on the crimes and punishment of Sam Bankman-Fried. But in the background, the actual customers he left behind have been caught in this financial feeding frenzy over the remains of the company.

ARONCZYK: Today on the show, an anatomy of the FTX bankruptcy. We dive into that feeding frenzy to meet the vulture investors who make markets out of risky debt and hear how customers like Bhagamshi navigate the murky world of bankruptcy claims trading.

HOROWITZ-GHAZI: Here is the crux of what went wrong at FTX. When FTX customers thought they were buying, say, one bitcoin, it turns out FTX wasn't always buying one bitcoin and setting it aside for them. Sometimes they were using that customer money to make risky investments. And when people found out and customers started rushing to withdraw their crypto, FTX did not have enough. It was like a run on the bank if the bank were unregulated and without government protections.

ARONCZYK: And so in November of 2022, embattled FTX founder Sam Bankman-Fried signed the company over to a new emergency CEO, a man named John Ray. John Ray has shepherded several distressed companies through bankruptcy before, most famously Enron. And almost immediately after taking over, FTX filed for bankruptcy. So to understand this new world FTX was entering, we called up Adam Levitin, a bankruptcy scholar at Georgetown Law.

HOROWITZ-GHAZI: What do you think separates the bankruptcy nerds from the rest of us?

ADAM LEVITIN: I think we're the folks who always bring an umbrella to a picnic, right? We're always thinking about how things could go wrong and what would happen if they go wrong.

HOROWITZ-GHAZI: Adam explains the modern bankruptcy system in the U.S. goes back to the late 1970s. Before that, most of the time, if a company reached the point where it no longer had enough money to pay its debts, it could either try to get acquired, or it would generally be liquidated and sold off for parts.

ARONCZYK: But liquidation can be a messy and destructive process because all the parties who are owed money - the creditors - they are scrambling to grab whatever pieces of the company they can, and that can destroy a lot of the value that is left in that company.

HOROWITZ-GHAZI: So in 1978, Congress decided to redesign the way the courts handle companies on the verge of financial collapse.

LEVITIN: So instead of having the destructive, piecemeal liquidation that can go on in a grab race, bankruptcy law says all of the claims against the debtor have to be brought into a single forum. That's the bankruptcy court. And the bankruptcy court is going to have control over all the debtor's assets, no matter where they're located, and we're going to be able to have an orderly process.

ARONCZYK: Congress redesigned the law and created a new kind of bankruptcy - Chapter 11 bankruptcy. And Chapter 11 didn't just streamline the liquidation process. It actually made it easier for a company to be reorganized.

HOROWITZ-GHAZI: With the help of the bankruptcy court, a distressed company could pause all of its creditors' demands. It could come up with a plan for restructuring their assets and paying off their debts in a fair and orderly fashion, and it could potentially rise from the ashes as a new, healthier version of the company.

ARONCZYK: Adam says the system has created a sort of financial ecosystem that springs up around a Chapter 11 bankruptcy.

LEVITIN: So you can think of this a bit like a nature show about life on the on the Serengeti, right? So the distressed company is the carcass of the wildebeest or something. And then there's an order in the animal kingdom in which everyone feeds on the carcass.


ARONCZYK: In other words, once the distressed company declares bankruptcy, there is an order of priority for which creditors - the people who are owed money - will get paid back first.

LEVITIN: And at the top, you have the lions. Those are your - really, like, your secured creditors, the creditors who have collateral. And that's going to be your banks, right? Those are the lions in the world.

HOROWITZ-GHAZI: Secured creditors have contracts with the distressed company that include collateral, meaning if the company does not pay their debts, they have the right to take some property.

ARONCZYK: And then there are the unsecured creditors. Unsecured creditors are owed money from the company, but their contracts do not give them collateral. So this could be a vendor who supplies the company with services or materials, or it could be a group of employees who never got paid.

LEVITIN: You can think of those as maybe, I don't know, the hyenas and the jackals, and they pick what's left of the corpse after the lions have eaten their fill. And at the very end, I don't know if we want to push this metaphor too far.

HOROWITZ-GHAZI: Always push the metaphor.

LEVITIN: You know, if there's still some value left, it drips down to the old equity holders, and maybe they're the dung beetles.

ARONCZYK: The last group to get anything - the beetles holding the dung, I guess - are the equity holders, people who are invested in the company and who own stock.

HOROWITZ-GHAZI: Chapter 11 gives all these different groups - secured creditors, unsecured creditors and stockholders - a place in line to get paid back. And creditors have the right to a claim, a kind of IOU. And Adam explains one big important element of the modern bankruptcy system is that these claims can be bought and sold.

ARONCZYK: And so there is a fourth and final group circling above the bankruptcy Serengeti - a flock of opportunistic investors who buy bankruptcy claims in order to extract as much profit as they can from the feeding frenzy.

LEVITIN: These are kind of your distress specialists. Those are your vultures, right? They specialize in spotting opportunity and distress.

HOROWITZ-GHAZI: And one of the big opportunities these vulture investors are looking for are bankruptcies that may look hopeless at the beginning but actually still have a lot of hidden value inside. In those cases, the vulture investors can make a bet. They can buy claims on the cheap in the hopes that they'll get paid out more by the end of the bankruptcy.

ARONCZYK: And these bets can be extremely lucrative, especially in bankruptcies that begin in chaos and scandal. Take Enron, the energy company that went to bankruptcy after massive fraud, or Lehman Brothers, the investment bank whose collapse helped fuel the global financial crisis. Some distressed investors who bought bankruptcy claims for those two companies were able to make at least two or three times their money.

HOROWITZ-GHAZI: When FTX filed for bankruptcy, it was folded into a new legal entity, the FTX bankruptcy estate, and a few things made it an enticing wildebeest on the Serengeti of bankruptcy. First, the number of secured creditors, the lions, was relatively small.

ARONCZYK: And second, there was an enormous group of unsecured creditors because tens of thousands of FTX customers became FTX unsecured creditors - people like Bhagamshi Kannegundla, our Larry David-loving amateur crypto investor. That meant that all of these former FTX customers were well positioned in the bankruptcy food chain.

HOROWITZ-GHAZI: In November of 2022, most people were watching what was happening at FTX as this flaming hot financial wreck and hoping to stay as far away from it as possible.

ARONCZYK: But that is exactly the moment when some people's phones started blowing up with frantic messages in the middle of the night.

HOROWITZ-GHAZI: Do you ever identify as a vulture investor?

THOMAS BRAZIEL: Yeah. I don't have a problem with it. I kind of liken it to, like, economic dumpster diving.

HOROWITZ-GHAZI: Thomas Braziel runs a small distressed debt brokerage firm. He makes his living in part facilitating trades between bankruptcy claim buyers and sellers. Usually takes a commission. At first, Thomas was getting offers to buy frozen FTX accounts for more than 30 cents on the dollar.

ARONCZYK: But he wasn't interested because FTX's financial situation was still too unclear.

BRAZIEL: I was, like, nah, it's just too much. It was a total black box. I can't do those kind of trades. Like, putting money into black boxes and shooting from the hip is a great way to, like, get burned very quickly.

ARONCZYK: Thomas says that at the very beginning, FTX hadn't disclosed a lot of the usual information that he would typically use to figure out how much these claims might be worth. FTX declared bankruptcy so quickly and so chaotically that, at first, the company didn't even file all of the usual paperwork.

HOROWITZ-GHAZI: But for Thomas, that extra layer of chaos could mean more opportunity.

BRAZIEL: Some people had this mistaken impression that distressed investing, and especially distressed crypto investing, is the riskiest thing they've ever heard of. But risk is really not a function of what you do. It's the price you pay. And I just sort of thought like, you know, for the right price, we would stick our toes in the water on this.

ARONCZYK: But in order to figure out the right price to bother putting his toes int it, to start bidding for FTX's bankruptcy claims, Thomas needs to figure out a couple of things.

HOROWITZ-GHAZI: First, there's the question of what he's actually buying. Some FTX customers were arguing that they were owed the specific cryptocurrency in their frozen accounts, but Thomas knew that previous case law suggested that the ultimate payout would likely be based on however much the crypto was worth in U.S. dollars at the moment FTX filed for bankruptcy, which was relatively low.

ARONCZYK: Next, he needed to figure out what assets FTX might actually have to see if it could be in a better financial position than it appeared.

HOROWITZ-GHAZI: So he does some online sleuthing - pokes around on Twitter, looks for splashy investments and acquisitions by scouring through the PR announcements from FTX and its sister company, Alameda Research, and he sees the FTX estate could have access to hundreds of millions of dollars' worth of Robinhood shares they might be able to sell and a bunch of other investments. And Thomas is able to see they do still seem to have a lot of crypto.

ARONCZYK: All of those are things the FTX estate should be able to get their hands on.

BRAZIEL: And so I was like, there's assets here that are going to come back to the estate. I'll bet this is at least 5 or 10 cents, so I'd be willing to buy these things for 3 and 6 cents.

HOROWITZ-GHAZI: In other words, Thomas is making an educated bet that it'll be worth the risk to buy the bankruptcy claims at just 3 to 6 cents, that he'll be able to get paid out more later when the bankruptcy pays its creditors.

ARONCZYK: Thomas starts bidding. He closes one deal, an $8 million claim for 3 cents on the dollar, and then two more multimillion-dollar claims for 6 cents on the dollar.

BRAZIEL: And I actually did have, like, a big distressed guy call me. He was like, what? You're bidding on FTX claims? You're freaking crazy. And I was like, I mean, look, I think you can get 10 cents on the dollar, and I'm bidding 5. And he was like, that's too high. You're bidding too high. And I was just like, I don't know, but I know I'm the only person even putting in a bid, so that's usually a good place to start.

ARONCZYK: Thomas was offering just a few pennies on the dollar for bankruptcy claims. Now, some people heard Thomas' offer and were upset. They called him a vulture. But, he says, other people were eager to make the deal so they could cash out as quickly as possible.

HOROWITZ-GHAZI: Around the same time, other brokers were getting into the mix, which brings us back to our IT consultant, Bhagamshi Kannegundla, and his frozen FTX account.

KANNEGUNDLA: I was thinking I would have to wait, like, maybe four years before I get even some of it back.

ARONCZYK: But Bhagamshi says he quickly found a prospective buyer through that online marketplace, Xclaim.

HOROWITZ-GHAZI: The buyer offered him 11 cents on the dollar for his $170,000 bankruptcy claim, which meant he'd be giving up a potential $150,000, 89% of his full claim.

ARONCZYK: Which sounds like a terrible deal, right? Like, the total value of the claim was already low because the price of crypto at that time, and on top of that, he was losing, like, almost 90%.

HOROWITZ-GHAZI: But he also knew it would likely take many years before any creditors got paid at all. And he wanted to cash out immediately. The cryptocurrency market was in freefall in the wake of FTX, and he wanted any money you could get in order to reinvest.

KANNEGUNDLA: I mean, Bitcoin was below 20 grand. Ethereum was below two grand. That's amazing. So that's when I was like, I'm selling this bankruptcy claim because I will never see these prices again. I'd be an idiot if I didn't take advantage of this.

ARONCZYK: So Bhagamshi sells his FTX bankruptcy claim, and he gets around $19,000 in total.

HOROWITZ-GHAZI: Over the next several months, Thomas Braziel, the distressed asset broker, starts to broker more and more deals. Some are with amateur investors like Bhagamshi, but a lot are institutional investors. Whole crypto hedge funds are forced to shut down and sell off their claims.

ARONCZYK: And by early 2023, the price of claims starts ticking up because the FTX bankruptcy estate, led by emergency CEO John Ray, who had presided over the Enron bankruptcy, they start to announce that they've been able to track down assets that can be sold to pay back creditors.

BRAZIEL: And that's when, like, a lot of the distressed firms started getting interested because they're like, oh, we know John. We bought claims in Enron and did very well.

ARONCZYK: Thomas is helping to broker bigger and bigger deals.

HOROWITZ-GHAZI: By the spring of last year, a number of big distressed asset firms had started getting in on the action, eventually buying up hundreds of millions of dollars' worth of FTX bankruptcy claims. That helped drive the price of the claims from 20 cents to 30 cents to 45 cents. And then there were the announcements from the FTX estate.

BRAZIEL: All of 2023 was nothing but good news. Every time you'd wake up, there - you know? - oh my gosh, we - you know, they'd have this asset they didn't know about, or they settled this for $100 million, or they recovered that, and that's another $50 million. It's, like, holy moly.

ARONCZYK: Holy moly. Could FTX bankruptcy claims actually be worth way more than even Thomas had imagined?

HOROWITZ-GHAZI: After the break, the crypto market starts creeping back towards the moon, we tally up everyone's bets and what all of this actually means for FTX customers like Bhagamshi Kannegundla.

OK. So it has now been almost 18 months since FTX filed for Chapter 11 bankruptcy. Chapter 11, you will recall, offers a way for companies to either restructure and rise from the ashes or to liquidate. In the case of FTX, the estate announced a few months ago they could not find a suitable buyer, and so they would not be restructuring and restarting the FTX exchange.

ARONCZYK: As for the prospects for how much all the FTX creditors are likely to get paid back, there have been a few major changes since the bankruptcy process began. First, the FTX estate managed to track down a surprisingly large amount of assets pretty quickly.

HOROWITZ-GHAZI: Second, several of the investments that FTX and its sister company Alameda made, in part, illegally using customer deposits, some of those investments have actually hit pretty hard. For instance, in 2021, FTX bought a $500 million stake in an AI startup called Anthropic.

ARONCZYK: And as AI has taken off over the last year, so too has that investment. A few weeks ago, the FTX estate announced they'd sell a portion of that stock for $884 million.

HOROWITZ-GHAZI: And the last big thing that sort of changed the game for the FTX estate is that the crypto market has seen a remarkable rebound. Bitcoin, for example, had been trading at about $16,000 around the time FTX declared bankruptcy. It has recently shot to a new record high of over $70,000.

ARONCZYK: For people who made big bets on the corpse of FTX, like distressed investor Thomas Braziel, this is pretty exciting. FTX still holds some major crypto assets that have seen these big gains, like Bitcoin, Ether and Solana.

BRAZIEL: They own 40 million Solana. I'm looking at it right now. Look at this. December 30, 2022, Solana was just under $10, and now it's at $186.


BRAZIEL: That helped a lot.

HOROWITZ-GHAZI: Finally, by January of this year, lawyers for the estate had announced that FTX had recovered more than $7 billion in assets so far and that, at this point, they could cautiously predict that they'd be able to pay back the company's creditors in full. Meaning if things go according to plan, everyone holding valid FTX bankruptcy claims will receive at least 100 cents for every dollar they are owed.

ARONCZYK: So they may receive 100% of their claim in the end. All of it.

HOROWITZ-GHAZI: Which sounds pretty great, so great, in fact, that lawyers for Sam Bankman-Fried used the news to argue that he should get a lower prison sentence. The judge, however, did not buy this argument. He ended up sentencing Sam Bankman-Fried to 25 years in prison for fraud, conspiracy and money laundering.

ARONCZYK: And others point out that FTX customers aren't really being made whole. Yes, they may end up getting their full claims, but the value of those claims were calculated when the crypto market was collapsing. So some customers who sold their claims early, they won't benefit at all. And some customers went into personal bankruptcy during this whole long process.

HOROWITZ-GHAZI: As for Thomas Braziel and the other distressed investors and brokers who got in on the action, the FTX bankruptcy is shaping up to be a huge moneymaking bonanza for them, one that could potentially see 10X returns or more for people who bought in at the bottom of the market.

BRAZIEL: I think this is the biggest thing that ever happened to the whole, like, Cretan backwater area of bankruptcy trade claims since the invention of the whole idea of buying these. It looks a lot like Lehman.

ARONCZYK: Lehman, as in that Wall Street investment bank, Lehman Brothers.

BRAZIEL: When Lehman went under, everybody thought, oh my God, this is horrible. All the stuff is toxic waste. Who's going to want to buy any of these assets? - and ended up for some distressed buyers the recovery of Lehman was about 140 cents on the dollar, but it took 10 years. And so we joke that FTX is like Lehman on speed.

ARONCZYK: Now, it still isn't clear exactly how much FTX creditors will end up getting paid or exactly when, but creditors could potentially start seeing the first round of payments around the end of this year.

HOROWITZ-GHAZI: We should also say in 2021, Thomas Braziel was accused of, among other things, misappropriating funds from a bankruptcy estate he was managing. He's admitted to making mistakes in the case, but he denies, quote, "actual or potential criminal liability." As for Bhagamshi Kannegundla, the FTX customer who sold his $170,000 bankruptcy claim for just 11 cents on the dollar, when I asked him did he regret selling his claim for so little and missing out on what could be big payments, he told me he actually hadn't been following any of the developments in the bankruptcy case.

KANNEGUNDLA: After I sold my claim, I don't even think about it.

HOROWITZ-GHAZI: You were like, I'm out of here.

KANNEGUNDLA: I'm done. I'm done. Because here's the thing, focusing on stuff that's been done doesn't allow you to move forward. You let it go, and then you move on to the next.

HOROWITZ-GHAZI: Did it feel like an emotional thing, too, of, like, if you could get rid of this claim that kind of tethered you to this loss, you could actually kind of emotionally move on in a way that was better?

KANNEGUNDLA: Yes, 100% correct. I didn't want to be stuck in purgatory. When I released the claim and I got the money...


KANNEGUNDLA: ...I felt, like, as if a big weight has been lifted off my shoulders. I...


KANNEGUNDLA: ...Don't have to think about it anymore.

HOROWITZ-GHAZI: Bhagamshi says he used his claim money to reinvest into crypto, largely into Solana, and he's been able to grow his $19,000 into about $60,000, which isn't close to erasing his FTX losses. But he says, who knows? By the time the FTX estate finally pays its creditors, maybe his new investments could be worth even more than his original claim.

What would Larry David say about that outcome?

KANNEGUNDLA: (Impersonating Larry David) That's pretty, pretty good.


HOROWITZ-GHAZI: (Impersonating Larry David) Pretty, pretty good.

KANNEGUNDLA: (Laughter) I like the way you said it, though.


HOROWITZ-GHAZI: Are you part of an international financial fiasco? Tell us about it. Send us an email at We're also @planetmoney on all the socials media.

ARONCZYK: James Sneed and Sam Yellowhorse Kesler produced this episode. It was edited by Jess Jiang and fact-checked by Sierra Juarez. It was engineered by Cena Loffredo, and Alex Goldmark is PLANET MONEY's executive producer.

HOROWITZ-GHAZI: Special thanks to Jonathan Lipson, Jake Thacker, Kate Waldock, Diane Dick, Barclay Walsh and Andrew Glantz. I'm Alexi Horowitz-Ghazi.

ARONCZYK: I'm Amanda Aronczyk. This is NPR. Thanks for listening.


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