This lawsuit was concluded last year (…)
The lawsuit stems from a deal concluded last year in which Mr. Gielczyk sold his interest in Olympus Peak at a 42% discount and received a payment of $930,000.
This transaction is typical of many in the cryptocurrency industry in recent years, with investors unlocking the value of frozen accounts in FTX, BlockFi, Celsius, and Voyager and making cash payments. The advantage for account sellers is that they can avoid the tedious and uncertain bankruptcy process and get at least some of their funds back.
On the other side of the equation, the account purchaser accepts the risk and expects an increase in the final payment amount when the bankruptcy is completed.
However, recent developments in the FTX bankruptcy proceedings have significantly changed the potential value of such claims. A U.S. bankruptcy judge recently approved a reorganization plan for FTX that aims to repay customers who received charges of $50,000 or less at 129% to 146% of their original value. This unexpected spike in the amount owed prompted Mr. Gielczyk to seek legal redress. In short, “Have your cake and eat it too.”
Mr. Gyelczyk claims that Olympus Peak stands to make a significant profit from his claims, potentially exceeding $1 million, because the repayment terms have been significantly improved. He claimed that the hedge fund had refused to honor the terms of the agreement regarding additional recovery rights, believing that this would entitle it to a larger portion of the final payment.
What is the excess billing clause?
The lawsuit, filed in Manhattan federal court, accuses Olympus Peak of breaching the purchase agreement and seeks additional compensation from Mr. Gielczyk.
Mr. Gielczyk’s legal representatives say in the lawsuit that Mr. Gielczyk agreed to the initial sale because the purchase agreement states that he will receive additional recovery if the claim is ultimately paid over face value through bankruptcy proceedings. He emphasized that this was only because it contained a clause explicitly recognizing rights. This clause, known as the “excess billing clause,” provides that if a claim exceeds the original amount, Olympus Peak will pay Mr. Gielczyk the difference multiplied by the agreed buyout rate. He stipulated that he would buy it.
According to the complaint, the most recent FTX disclosure statement shows that claims similar to Gielczyk’s are estimated to receive distributions of as much as 146% of their value. But Gielczyk’s lawyers argue that Olympus Peak has refused to honor this clause and has “made clear that it will not fulfill the ultimate purpose of the contract.”
As of this writing, there has been no official statement from Olympus Peak regarding this matter. The outcome of Mr. Gielczyk’s case may impact future practice related to the interpretation of contractual agreements in bankruptcy claims transactions and similar situations.
