Xclaim CEO: Creditors sell bankruptcies ‘to cleanse their hands’

Xclaim CEO Matt Sedigh joins Yahoo Finance Live to discuss major crypto exchange collapses, buying and consolidating crypto collapse claims, how Xclaim works, and the reasons why creditors sell bankruptcy claims.

Video Transcript

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- As we talk about the collapse of crypto mainstays like FTX and Three Arrows Capital, we know they threw thousands of crypto traders into a perpetual fight to recover their frozen assets. Companies like Xclaim now offering to pay out those claims in exchange for the rights to pursue those bankruptcy claims. Here to discuss, Xclaim CEO Matt Sedigh joined by Yahoo Finance's Dave Hollerith. This segment sponsored by Intuit TurboTax. A big thank you for joining us this morning, Matt. So first, for someone who had some of these investments in a Voyager or on one of these bankrupt exchanges, walk us through what people can do through your company.

MATT SEDIGH: So bankruptcy is a very misunderstood topic. And a company in bankruptcy does not mean it has necessarily failed or that is worthless. And the value of an account or a claim for that account is still tradable. We provide a service for account holders to come and recover their value immediately versus wait for the bankruptcy process to play out and the uncertainty of what that ultimate recovery may be or how long it will take.

DAVE HOLLERITH: Yeah, Matt, I'm kind of curious to-- I kind of understand why-- well, I want to get into why creditors would sell their bankruptcy claims, but why are people buying them now? I think that's a little bit less understood. I've heard there's interest with crypto hedge funds, longtime OG crypto investors, and then also more traditional Wall Street firms. So can you tell us a little bit about what the buying interest is?

MATT SEDIGH: So the typical buyer of a bankruptcy claim historically has been a distressed debt investor. However, these crypto cases have attracted, like you mentioned, numerous crypto hedge funds, retail investors, and others who see value in bankruptcy claims and are willing to wait the x number of years before they recover that value. The interest in buying bankruptcy claims, of course, is a profit motive. And the value of that profit is a speculative bet that the future recovery is greater than the purchase price of the claim.

That's like most investments, of course. The flip side to that is that creditors or account holders are looking to effectively sell a loss and collect that cash today and be able to reinvest it in a shorter time frame than it would take for the bankruptcy process to play out over several years.

DAVE HOLLERITH: Yeah, and I'm curious too on the selling side-- obviously, if a creditor were to sell their claims a month ago, they may not have been able to get as much for it as they would now, because obviously, more clarity comes to light in terms of some of these bankruptcy cases. So I'm curious, what are the reasons that creditors sell? Because I know there are a lot of other implications such as taxes.

MATT SEDIGH: The general reason-- the usual reason is to cleanse their hands of that uncertainty and to avoid an extended process, a process that they don't have much control over. The other reason is they want the cash, and they believe that having the cash today allows them to reinvest it and recover a greater value over x number of years than it would be just sitting in a bankruptcy claim in the bankruptcy court that is very slow and largely inaccessible to them.

- And Matt, as we look at some of the platforms that you trade claims in-- you have FTX, BlockFi, Celsius, Voyager, soliciting bids for Genesis at the moment as well-- what sort of success rate is there in terms of the number of buyers that are out there versus the number of sellers?

MATT SEDIGH: Well, the number of sellers far outpaces the number of buyers. We're talking about every account holder at each of those five platforms. We estimate it to be about 15 million accounts across those five platforms globally. The number of buyers that we've registered-- I think we just crossed the 500 mark of active interested crypto claim buyers. And every single day, we're getting more interest and more active buyers actively bidding on claims.

DAVE HOLLERITH: And I'm curious, what's the success rate for retail creditors who are selling their claims? I know these larger firms are more interested in these larger bulk claims orders. But I'm curious, what's your interaction been with retail creditors?

MATT SEDIGH: Retail creditors, like anyone else, are looking for immediate cash. And our platform allows many buyers to be bidding on the same claim. And that provides a sense of transparency and clarity for a creditor, for an account holder, of what their claim is actually worth in an open market. This market has existed for many years, but been largely opaque, and it's been one-to-one transactions.

And at this point, what we've done is create a marketplace where creditors can get comfortable that the price they're receiving is the fair market price because we've exposed it to hundreds of buyers. They've received bids from several buyers or many buyers, and they've come to realize $0.60 on the dollar is the best I'm going to get for this right now. And I'd rather take that cash in hand than wait who knows how long to receive how much.

Your comment earlier about a month later, there would be more certainty, that's usually true. Over time, you learn more. But you may learn that you're going to receive less. And that's exactly what happened in one of these cases that we're trading, Celsius. And in the Celsius case, now we have more interest amongst account holders than we did a month ago because they've learned that if they wait, it's going to take them five years to receive less than they expected.

- And certainly, some welcome relief for people who aren't really sure what to do if they have their money stuck in some of these exchanges. Xclaim CEO Matt Sedigh and Yahoo Finance's David Hollerith, thank you for joining us this morning. This segment is sponsored by Intuit TurboTax.