The lawsuit stems from a deal struck last year in which Gierczyk sold his claim to Olympus Peak at a 42% discount, receiving a payout of $930,000.
The deal is typical of many in the crypto space in recent years, where investors have unlocked the value of frozen accounts on FTX, BlockFi, Celsius and Voyager for cash payouts. The upside for the account seller is that they avoid a painstakingly slow and uncertain bankruptcy process and get at least a percentage of their funds back.
On the other side of the equation, the account buyer accepts the risk and hopes for an upside in regards to the eventual payout when the bankruptcy runs its course.
However, recent developments in the FTX bankruptcy proceedings have significantly altered the potential value of such claims. A US Bankruptcy Judge recently approved FTX’s reorganization plan, which aims to repay customers with claims of $50,000 or less between 129% and 146% of their original value. This unexpected surge in potential payouts has prompted Gierczyk to seek legal redress – essentially ‘have his cake and eat it too.’
Gierczyk contends that Olympus Peak stands to reap a substantial profit, potentially exceeding $1 million, from his claim due to the significantly improved repayment terms. He asserts that the hedge fund has declined to honor a provision in their agreement concerning additional recovery rights, which he believes entitles him to a larger portion of the eventual payout.
What Is An Excess Claim Provision
The lawsuit, filed in Manhattan federal court, accuses Olympus Peak of breaching their purchase agreement and demands supplementary compensation for Gierczyk.
Gierczyk’s legal representatives emphasized in the lawsuit that he agreed to the initial sale only because the purchase agreement included a clause explicitly granting him the right to receive additional recovery if his claim was ultimately paid above par through the bankruptcy proceedings. This clause, known as an “excess claim provision,” stipulated that if the claim was allowed in an amount exceeding the initial claim amount, Olympus Peak would purchase the excess claim amount by paying Gierczyk the difference multiplied by the agreed-upon purchase rate.
According to the lawsuit, the most recent FTX disclosure statement indicates that claims similar to Gierczyk’s are estimated to receive as much as 146% of their value in distributions. However, Gierczyk’s legal team alleges that Olympus Peak has refused to acknowledge this provision and has “made clear that they would not be fulfilling their end of the bargain.”
There has not been an official statement from Olympus Peak regarding the case as of the writing of this article. The outcome of Gierczyk’s lawsuit could potentially influence future practices related to the trading of bankruptcy claims and the interpretation of contractual agreements in similar situations.
