(Bloomberg) -- Investors are trying to buy up shares of defunct crypto exchange FTX on the off chance that equity holders could see a recovery if victims who lost billions are made whole.

Funds holding creditor claims — which FTX looks more and more likely to repay in full — have also sought to buy preferred shares in the closely held company in recent months, according to people with knowledge of the matter. Brokers have been trying to source the preferred equity from its current holders in order to meet the demand, said the people, who asked not to be named discussing the private efforts. 

Such a trade would have seemed ludicrous when Sam Bankman-Fried’s firm imploded 16 months ago, leaving a morass of inscrutable corporate records behind. Since then, Solana — a token heavily backed by Bankman-Fried — has surged, the value of FTX’s stake in an artificial intelligence startup has soared and advisers overseeing FTX’s carcass have amassed some $6.4 billion of cash to pay creditors and former customers.

The chances of FTX’s preferred equity paying out are still tiny, mainly because shareholders are always last in the repayment line in US bankruptcy. All of FTX’s debt — including more than $10 billion in claims held by the US government — would need to be reduced or repaid first.

Despite that, a shareholder advocate has tried to convince the US bankruptcy system’s federal watchdog to set up an official panel of stockholders in the company’s Chapter 11 case, according to people with knowledge of the attempt. The effort failed. The watchdog, called the US Trustee, only appoints equity committees when there is a clear possibility that shareholders may recover something.

The investment funds interested in buying the shares don’t believe a payout for the stock is likely, according to the people. But the trade would allow them to profit in the rare case that FTX’s new managers dig up more money than needed to repay creditors and customers.

A spokesman for FTX declined to comment, as did a representative for the US Trustee. 

Cash Pool

In recent months, FTX has more than doubled the size of its cash pool, thanks to the collection efforts of the independent advisers who took over FTX when it collapsed in November 2022. FTX has more than $10 billion worth of cash and other assets it plans to distribute to customers and creditors, company attorney Andrew Dietderich said during a January court hearing in Wilmington, Delaware.

The prospects are so good that an official committee of low-ranking creditors is pushing for interest to be paid on creditor claims, court papers show. Known as post-petition interest, such payments are rare in Chapter 11 cases. 

Bankman-Fried, who is facing decades in prison after being convicted of fraud, claimed in a February court filing that FTX was solvent at the time it filed bankruptcy and the firm’s collapse was instead the result of a temporary liquidity crisis caused by unprecedented customer withdrawals. “The money was there, not lost,” Bankman-Fried’s lawyers said, arguing for a lighter prison sentence.

Some FTX customers sold their accounts to investors at steep losses. Creditor claims worth more than $1 million were trading at around 10 cents on the dollar when FTX collapsed but are now trading at around 90 cents on the dollar, according to investment firm and bankruptcy claims broker Cherokee Acquisition.

The case is FTX Trading Ltd., 22-11068, US Bankruptcy Court for the District of Delaware.

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