Bankruptcy Claims Arbitrage

Scott Galloway shares his experience with distressed investing, specifically buying bankruptcy claims against FTX at a significant discount, which yielded exceptional returns.

Distressed Investing Strategy

• Purchased $10 million worth of FTX bankruptcy claims for $2.2 million (22¢ on the dollar)
• Identified undervalued assets in FTX's bankruptcy filing:
  • FTX had made a $500 million investment in Anthropic
  • Scott estimated Anthropic's valuation at $40 billion
  • This meant FTX's stake was potentially worth $4 billion
• Expected to receive 50¢ on the dollar initially based on the Anthropic stake alone
• Now expecting to receive 160¢ on the dollar (turning $2.2 million into approximately $15 million)

Process for Buying Bankruptcy Claims

• Found a broker (Thomas Brazell) by searching "FTX bankruptcy claims" online
• Broker assembled a team to:
  • Verify claim ownership
  • Conduct due diligence
  • Legally transfer claims
• Paid the broker 10% of the upside for finding and acquiring claims
• Broker would present claim opportunities every 48-72 hours for approval

Why Distressed Investing Works

• "Hands down the best asset class is distressed"
• Less competition because it's not sexy:
  • "The sexier an investment, the lower the returns"
  • "It smells like piss... it reeks of death"
  • "No one wants to hang out with bankrupt companies"
• Has yielded his biggest wins (including a 30x return on another distressed company)
• Requires more work and has higher perceived risk, leading to better pricing opportunities