FTX client says hedge fund cheated him out of bankruptcy profits

(Bloomberg) — An FTX customer sued the hedge fund that bought his stake in the bankrupt cryptocurrency exchange, claiming Olympus Peak underpaid him even though the company stood to make more than $1 million on their deal.

California’s Nikolas Gierczyk says Olympus Peak owes him a bigger payout after he sold his $1.59 million claim to the hedge fund last year at a “substantial 42% discount” and FTX won approval from a bankruptcy reorganization plan that is expected to refund customers from 129% to as much as 146%.

Gierczyk claims that he stipulated an explicit right to additional recovery in his agreement with Olympus Peak, but the fund refused to honor this, according to the complaint filed Thursday in federal court in Manhattan.

“This lawsuit is completely without merit and is based on a clear misreading of the parties’ contract,” Ariel Lavinbuk, an attorney for the hedge fund, said in an emailed statement.

Rarely, FTX amassed billions of dollars more than it needed to cover what customers lost during the stock market collapse in November 2022 – thanks in large part to a bullish crypto market over the past year.

It is common for hedge funds to buy claims in distressed assets at a discount, providing claimants with a quick payout while the funds pursue a more robust recovery in the bankruptcy process.

Gierczyk says that under his purchase agreement with Olympus Peak, the hedge fund promised to buy from him any excess distributions from the bankruptcy, at the same 42% rate at which he sold his claim. “However, Olympus Peak made it clear that they would not honor their agreement,” its lawyers wrote.

The case is Gierczyk v. Olympus Peak Trade Claims Opportunities Fund I Non-ECI Master LP, 24-cv-07708, US District Court, Southern District of New York (Manhattan).

–With help from Rachel Graf.

(Updates with comment from hedge fund attorney in fourth paragraph.)

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