Updated FTX customer recovery estimate
Slight good news: recovery estimate raised to 33% before / 52% after clawbacks
The month of March brought a flurry of new disclosures and filings from FTX. Most importantly, FTX released Statements of Assets and Liabilities for over 100 entities. We also received updates on a small number of transactions.
Let’s start with the good news on the transactions front.
$50m investment in Sequoia Fund was sold on March 8th for $45m cash (10% haircut).
$101m investment in Mysten Labs and their Sui token was sold back to Mysten on March 22nd for $96m (5% haircut).
FTX recovered $404m (85%) of the $475m investment in Modulo Capital, a hedge fund managed by Sam Bankman-Fried’s girlfriend Lily Zhang and her buddy Duncan Rheingans-Yoo. Additionally, Modulo Capital agreed to forfeit its $56m balance on FTX.
These transactions were done at better prices than our assumptions for the venture capital and investment portfolios (80% haircut for venture capital and 50% haircut on investments). We don’t want to read too much into these prices, though. As any visitor to a thrift shop knows, the good stuff gets sold first and at the best price, and what is left over is worthless junk.
Another piece of good news came out today (March 29th): FTX discovered a previously undisclosed balance of $168m held by Alameda Research on OKX exchange under a nominee name. The recovery process has begun and the balance will be returned in full.
Now the bad news.
The sale of Embed has been postponed indefinitely. There doesn’t seem to be much interest in it. We carry Embed at book value in our recovery estimate worksheet, so this doesn’t affect recovery value much.
The Statement of Assets and Liabilities revealed $16m in non-customer liabilities. None of them are secured and only a tiny amount (less than $100,000) have priority over other creditors. The rest stand pari passu with customer claims.
Finally, and most importantly, lawyers and other professional advisors continue to rack up fees. Our previous estimate of $440m per year is turning out to be too low. Currently, the fees are piling up at the rate of $530m per year. We updated our estimates accordingly.
Net net, our new recovery estimate rises slightly, to 33% of face value in case that the court doesn’t authorize customer clawbacks, and 52% of face value if it does. Here is a summary of our valuation:
Paid subscribers of FTX Bankruptcy Monitor have access to the full valuation spreadsheet, including detailed recovery estimates, assets & liabilities schedule of over 100 debtor and non-debtor entities, crypto balances by coin, breakdown of professional fees by provider and month, and more.