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My First Million

How To Turn $100K into $4,000,000 with Distressed Investing

Published September 19, 2025
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About This Episode

The hosts interview a distressed investor named Tom who specializes in buying bankruptcy claims, especially in crypto-related cases like Mt. Gox and FTX, and walk through how his niche works. He explains the "stake and sizzle" approach to finding situations with both downside protection and significant upside optionality, details the hustling and legal knowledge required to trade claims, and shares stories from early crypto bankruptcies and his own investing background. Later, he candidly discusses a controversial Delaware receivership case that resulted in fines and a settlement, and closes with core investing philosophies and a reading list for learning more about distressed and value investing.

Topics Covered

Investing Value investing Bankruptcy Hedge funds Crypto Lawsuits Entrepreneurship Distressed investing Claims trading Personal Development

Disclaimer: We provide independent summaries of podcasts and are not affiliated with or endorsed in any way by any podcast or creator. All podcast names and content are the property of their respective owners. The views and opinions expressed within the podcasts belong solely to the original hosts and guests and do not reflect the views or positions of Summapod.

Quick Takeaways

  • Distressed investing at Tom's level focuses on buying bankruptcy claims cheaply where there is clear underlying asset value (the "stake") plus meaningful upside optionality (the "sizzle").
  • In the Mt. Gox case, Tom and partners bought customer claims at roughly one-fifth of Bitcoin's market price after 200,000 of 800,000 missing BTC were found, which ultimately produced over 40x returns for an early outside investor over about seven years.
  • Tom positions himself as a small, flexible claims trader at the bottom of the distressed "food chain," hustling to contact individual creditors using leaked lists and LinkedIn while relying on deep bankruptcy-process knowledge.
  • He believes many of the best investors effectively invented or entered very early into new categories (e.g., institutional distressed, early venture, crypto-distressed), benefiting from powerful tailwinds as capital later floods in.
  • One of his core philosophies is to "shop Madison, not Canal"-avoiding fake or hopelessly bad assets even if they look cheap, and instead seeking high-quality assets temporarily mispriced.
  • Tom argues that the first decade of investing is essentially tuition, emphasizing the importance of starting young and accepting that early mistakes are part of building skill.
  • He primarily invests his own capital into his distressed deals and keeps a highly active, sometimes concentrated portfolio, aiming to compound at 30-50% annually on a small capital base through claims work.
  • The ugly side of distressed investing includes being steamrolled by large players, dealing with emotionally devastated founders and families, and constantly arguing over shrinking, not growing, pies.
  • Tom openly acknowledges a Delaware receivership involving fund.com where the court sharply criticized his conduct, fined him and required a substantial settlement, which he describes as a major low point and a learning experience.
  • He recommends classic value-investing texts and biographies of entrepreneurs and investors-like Seth Klarman, Joel Greenblatt, and stories like E.P. Taylor and Kirk Kerkorian-to understand special situations and category-defining plays.

Podcast Notes

Introduction and setup of distressed investing topic

Recounting Scott Galloway's FTX distressed claim story

Hosts describe hearing Scott Galloway mention buying distressed FTX claims after the bankruptcy when it was viewed as a disgraceful failure[0:19]
• They recall him saying he bought around seven figures of claims (they debate 2 vs 10 million) somewhat casually, which shocked the hosts
Scott framed it as a one-off trade while the hosts saw it as a serious, sophisticated move[1:14]
• They note that Scott is often mocked for bad macro calls but people underrate his operator and investor background, including selling a company for around $100 million

Introducing Tom and objectives for the episode

Why Tom was invited

Host explains he contacted "Tommy" (Tom) after Scott's story to learn what he was doing in distressed and found the stories compelling[1:41]
Two goals for the conversation: Distressed investing 101 and a "first, best, worst, weirdest" deal game[2:20]
• Both hosts describe themselves as novices who prefer "vanilla" missionary business models and basic investing, so they want Tom to educate them

Tom's position in the distressed ecosystem

Tom says he is at the bottom of the food chain of distressed investing compared to large institutional firms like Oaktree, Silver Point, Fairlawn, Apollo[2:46]
• He notes there is a whole "industrial complex" of big distressed firms, while he came up differently due to his background
Tom's parents were bankruptcy lawyers, so he grew up knowing a lot about bankruptcy law and processes[3:06]
He characterizes distressed as value investing plus legal process expertise[3:15]

Core framework: Stake and sizzle in distressed investing

Explaining stake vs sizzle

Tom cites Michael Price's idea that in investing you want both "the steak and the sizzle"[3:22]
• He says adequate distressed investors find the steak-the known, substantive value and margin of safety
• The outstanding ones also get the sizzle-the upside optionality if things go right, while still having the steak if they do not
Host rephrases: steak is known intrinsic value; sizzle is how good it could be in a favorable scenario[3:56]

Applying stake and sizzle to FTX

Tom says in the FTX pitch they were buying at roughly 20 cents to receive about 30 cents in cash (the steak)[4:10]
• On top of that, investors had crypto upside (the sizzle) due to residual assets and optionality unless they were aggressively anti-crypto
He notes that historically some of the best distressed returns have come from financial services bankruptcies, Ponzi schemes, and dot-com-era cases[4:30]
• He mentions Comdisco as a famous dot-com-related bankruptcy and says many dot-com cases were decent because debt levels were low and mainly equity went to zero
Tom quotes a friend who says you should "avail yourself to the optionality" by setting up trades where you get upside either free or extremely cheaply[4:51]

Tom's business model and lifestyle

Structure of his operation

Tom says he is basically just a guy with a small team, joking that Scott calls him a "lifestyle business guy"[5:11]
• He values choosing when and how hard he works and appreciates that if there are no deals, he doesn't have to work on anything
He operates in a low-cost jurisdiction, which allows him to pass lower fees on to clients compared to big distressed firms[5:25]
• He suggests Scott probably does not pay the standard higher institutional fee structure, partially because large firms might want Scott as a client

Simple description of his role

Host summarizes: Tom finds distressed deals, convinces rich people to buy them, and takes a cut; Tom agrees, adding he also invests his own capital[5:49]
• He notes that if you lose money for people, they generally stop returning your calls, underscoring the importance of results

Origin of Tom's crypto-distressed focus and category invention

Motivation to pursue crypto-distressed as a category

Tom says he had already been involved in several crypto-distressed situations before FTX and believed great investors often invent a category[6:29]
He wanted to make crypto-distressed his category because he thought crypto was the future and institutions were unwilling to touch it[6:54]
• Around 2014-2015, he and a partner became the largest buyers of claims in the Mt. Gox bankruptcy

Examples of investors who created categories

Tom cites Howard Marks as a prototypical example of inventing institutional distressed as an asset class, which drew in large pools of capital and lowered cost of capital[7:19]
• He notes early venture capital pioneers in the 1970s and 1980s, like Alan Patricof, also effectively created the institutional venture category and later built huge firms
He likens the impact of category creation to a "wall of liquidity" that creates powerful tailwind returns even if long-term returns compress[7:45]
YC (Y Combinator) is mentioned as having created the accelerator and pre-seed category, starting as an experiment funding people pre-product and pre-revenue[7:15]
Tom says early LBO (buyout) specialists, including some Goldman partners who were his early hedge-fund investors, earned "insane" returns before private equity institutionalized[9:13]

Case study: Mt. Gox bankruptcy and trade structure

Background on Mt. Gox

Mt. Gox was the largest Bitcoin exchange in 2014, handling about 80% of volume when it failed[10:47]
• A major hack occurred; management tried to cover it up, and eventually the company filed for insolvency in Japan and a Chapter 15 recognition proceeding in the U.S.

Mechanics of buying Mt. Gox claims

Tom explains that customers became creditors with claims after the insolvency, and he could buy these claims at a discount to face value[11:12]
• Initially, claims traded at about one-fifth of Bitcoin's market price when BTC was around $300, and they bought claims at about $80 per Bitcoin-equivalent
The estate later found 200,000 of the roughly 800,000 Bitcoins that were supposed to be there, giving a 25% asset recovery ratio based on BTC count[13:07]
• Tom emphasizes distressed math is simple: 200k / 800k ~ 25%, so creditors looked likely to recover about 25 cents on the dollar of Bitcoin terms
Tom and partners were offering around 5 cents on the Bitcoin dollar after the 200k BTC were discovered, giving considerable downside protection[13:28]
• He clarifies they only began buying after the 200,000 BTC had been found, using that as the steak while potential additional findings and BTC price appreciation were the sizzle

Stake and sizzle in Mt. Gox

Stake: 200,000 Bitcoins were actually held by the estate when BTC was around $300, and they were buying claims at roughly 25% of that value or less[13:39]
Sizzle: possibility of finding more BTC plus Bitcoin price increasing significantly from $300, giving leveraged upside[13:52]
Tom recalls the first hedge fund he pitched laughed him out of the room for suggesting a Bitcoin-related trade in 2015[14:06]
• He says the manager at Southpaw (a $2B hedge fund that later went out of business) reacted by knee-slapping and calling it the funniest idea he'd heard that week

Tom's hedge fund constraints and symbiotic relationships

Tom ran a very small hedge fund and initially bought only about $200,000 worth of claims, which was roughly 10% of his capital, to avoid overconcentration[15:43]
• Because of size limits, he would often seek larger firms like Oaktree to take most of a deal while he kept a slice, building symbiotic relationships
He says big distressed firms sometimes call him with tiny deals they can't do, while he calls them for big deals he can't do, trading allocation or fees informally[16:40]

Returns realized from Mt. Gox

Tom describes different investor cohorts: later hedge funds that kept buying all the way up made around 2-3x, whereas an early outside LP made over 40x[17:00]
• The 40x+ return unfolded over about seven years and came mostly from BTC appreciation, with roughly 5x coming from the purchase discount and the rest from price gains
He notes one original claim they bought was from a Google employee and jokes that Google's outside counsel effectively wrote his original Japanese-court purchase documents[17:57]

The "free" Bitcoin big-short moment

Tom says the true big-short-style moment was in 2018 when the trustee sold about 40,000 BTC, raising about $600M cash while $2-3B of crypto remained[18:20]
• At that time BTC was ~10-12k, the estate had $600M in fiat plus ~$2B in crypto, and they were buying claims at a look-through valuation below the $600M cash alone
By paying around a $400M valuation for all claims against $600M cash and billions in crypto, they effectively got the Bitcoin exposure "for free"[18:43]
Prices were depressed because of uncertainty over who would get the uplift in BTC value-the customers or prior owners/insiders-an issue that also appears in FTX and other crypto bankruptcies[19:11]

Access and competition in distressed claims markets

Barriers for retail and small players

Host notes that from the outside, big bankruptcies like FTX or Mt. Gox look fully covered by authorities and big players, making it seem like no opportunity remains[19:53]
Tom agrees that for distressed bonds trading, you need serious prime broker relationships and capital; retail cannot usually trade defaulted bonds through standard brokerages[20:45]
• He compares small players risking getting "run over" by big distressed firms in bond markets, similar to the garage hedge fund in "The Big Short" being dismissed by large banks

Tom's niche at the bottom of the totem pole

Tom positions himself as working primarily in the claims market-customer account claims and trade claims-rather than complex structured debt[22:32]
• He says there are about 10 real claims-trading firms and jokes that most people in the niche are not super smart, likening it to a low-level IT admin role within distressed investing
He likes "hanging out with the rejects" and compares himself to the small fish that live symbiotically on a shark, cleaning up scraps that big distressed firms leave[22:19]

How he actually sources individual claims

In Mt. Gox, a leaked list of about 14,000 creditors let him identify likely claim-holders[22:57]
• He would cross-reference names on LinkedIn, looking for under-35 tech people with Bitcoin group memberships to message about selling their claim
The work involves locating claimants, contacting them, getting them interested, verifying ownership, and ensuring the claim has not already been sold[24:29]
• Hosts point out that this grunt work is what allows investors like them to simply wire money into a cleaned-up SPV and rely on Tom's diligence
Tom notes there are many legal and procedural corner cases in claims work that require real bankruptcy knowledge, even with tools like ChatGPT assisting[25:07]

Economics and lifestyle of Tom's claims business

Income potential and fee tension

Tom says it's possible to make seven figures and, in a good year, potentially low eight figures from this work, though eight figures is hard[25:56]
• He notes some people push back on his fees because he isn't a large New York firm, but reputation built over time allows him to charge more
Being in Italy with project-based work allows him to modulate his effort depending on the deal flow[25:24]

Early exposure to bankruptcy and first distressed deals

Childhood around bankruptcy courts

Tom's mother was a consumer bankruptcy lawyer, and as a child he spent time at courthouses and in clerks' offices due to lack of daycare[26:28]
• He remembers hearing about HUD houses-distressed government-owned homes that could be bought cheaply-and flipped one with his brother using his mother's capital

Baseball card shop anecdote

He recalls a time when the baseball card market crashed after overprinting, and entire shops were liquidated cheaply[28:15]
• One whole shop with all its inventory was available for $3,000, and his mother asked if he wanted her to put up the money to buy it, which expanded his sense of what was possible

Blending bankruptcy knowledge with value investing inspiration

Tom says he bought his first stock around age 11 or 12 and was obsessed with Warren Buffett as a kid[29:03]
Over time he tried to meld Buffett-style deep value investing with specific knowledge of bankruptcy law and processes[29:56]
• He views his niche as: knowing legal code, applying valuation skills, and having entrepreneurial hustle to raise capital and do the on-the-ground work

Adventure of investing in early special situations

Tom describes one early distressed play, Ethnex Energy, where he drove around the Northeast buying restricted physical share certificates from holders[30:31]
• He would go with them to local banks to get medallion signature guarantees, likening it to Buffett's early adventures buying shares and investigating companies like GEICO

Influences from Buffett and other legendary investors

Buffett hustle stories and informational edge

Tom references a story where Buffett allegedly joined a hunting club that owned oil-rich land just so he could buy shares from fellow members[31:25]
• He says Buffett used his unique competitive advantages, including scuttlebutt and local connections, to exploit informational arbitrage in earlier eras
Tom notes that modern tools like Google Translate open new edges, such as investing in Japanese insolvencies that Buffett could not easily access decades ago[32:11]

Importance of communication and fundraising skill

He praises Howard Marks as an "absolute legend" not just for investing, but for being a great communicator and fundraiser, alongside investing partner Bruce Karsh[33:44]
• Tom argues top investors often combine returns-generating skill with communication and capital-raising abilities or have partners who complement them

Tom's core investing philosophies

Stake and sizzle restated as a guiding principle

Tom confirms that having a solid stake with attractive sizzle optionality is his first core philosophy[34:15]

"Shop Madison, not Canal"

He explains this phrase means avoiding fake or worthless assets (like knock-off handbags on Canal Street) and instead buying quality assets on sale (like discounted goods on Madison Avenue)[34:41]
• A major error in deep value and distressed is buying value traps: businesses that look cheap because capital sunk into them far exceeds their true, often near-zero value
Tom notes that in restructuring, assets can become liabilities and liabilities can become assets, so investors must be careful not to be fooled by sunk-cost anchors[35:06]

"Start young: the first decade is tuition"

Tom views the first 10 years of investing as tuition where you will be terrible and make mistakes, so starting young helps compress the learning curve[35:12]
He shares his first stock picks: Home Depot (based on an HBR story about Bob Nardelli), Inco (a nickel producer, based on rising nickel prices in Foreign Affairs), and EMC (from a Forbes article)[36:11]
• He admits these early choices were narrative-driven rather than valuation-based and highlights the feeling of buying a stock and then not knowing what to do next
Tom says many successful operators who later come into money at midlife have never actually invested before and underestimate how different investing is from building a company[38:02]
• He recalls meeting an early Airbnb employee with $80-100M who assumed he could now pick stocks like Duolingo despite zero investing track record

Tom's personal portfolio approach and concentration

Active vs passive allocation

Tom keeps his own money almost entirely in active investments, primarily his own distressed deals, and avoids hiring external money managers[39:12]
• He is open to tax and estate advisors but not to delegating investment decisions, partly because he still has more ideas than capital

Degree of concentration and target returns

Tom admits he sometimes gets highly concentrated and likes it when it "hurts a little bit" because it reflects conviction and entrepreneurial bent[40:49]
He believes that on a small capital base (e.g., a few million), claims work can reliably compound at 30-50% annually depending on the year[41:10]
• He reiterates that returns and optimal strategies change dramatically as the capital base grows toward $100M or more

Upsides and downsides of distressed investing as a career

Ugly structural aspects of distressed

Tom warns that as a small player, you can get "totally hosed" because large firms will not "play nice" in bankruptcy court[42:44]
• He pushes back against naive beliefs that firms like KKR will voluntarily take care of everyone to avoid bad press; they will walk over you if it's in their interest
Distressed is highly transactional and financially driven, often involving arguments over a pie that is shrinking or spoiled rather than growing[44:03]

Emotional toll from dealing with ruined lives

Tom frequently encounters founders or families whose life's work or multi-generation businesses are in bankruptcy and emotionally devastated[44:31]
• He likens his role to a guidance counselor helping them through deals or sales while being respectful of their loss
He admits investing is a bit of a disease for him; he feels compelled to study deals on nights and weekends even when it may not be best for him personally[45:22]

Discussion of Tom's Delaware receivership controversy

Context and nature of the case

Tom brings up a receivership in Delaware involving fund.com where he received nasty headlines and wants to address it openly[48:30]
He was court-appointed receiver in Delaware Chancery Court for a company whose prior leader, Jason Galanis, had been arrested for a different fraud[49:42]
• He had bought about 20% of the company believing it owned the fund.com domain and an interest in ETF firm AdvisorShares, then sought the receivership to marshal assets for shareholders

Court's criticism and Tom's actions

Tom ran all aspects of the receivership-bank accounts, taxes, administration-and also invested some of the receivership funds in his own deals[49:26]
A shareholder complained to the court about how he was handling things; the court investigated and "aggressively slapped" him, disagreeing with his activities and tax positions[50:42]
• He says despite his view that they generated a good recovery for shareholders, the court disapproved of commingling, moving money, and self-directed investments

Financial consequences and settlement

The court fined him $2M as constructive trust profits and also required him to pay for a special master costing around $750-800k[52:30]
• Later, he reached a settlement with the new receiver totaling $3.6M plus about $800k in escrow plus roughly $10M of claims he turned over, which were characterized as commingled
Tom emphasizes the settlement involved no admission of liability but acknowledges the case was a major down moment and says he likely will not serve as a receiver again[52:52]

Emotional and personal lessons from the ordeal

The receivership dragged on for about three years until 2022, which Tom describes as a heavy weight over him[55:47]
He tried to resign himself to accepting whatever outcome came, focusing on cooperating with the court while still advocating for his view of what was right[56:11]
• He contrasts his Southern, people-pleasing upbringing with the need to sometimes do what he believes is right even if others, including courts, dislike those decisions
Tom stresses that for future business partners, he wants to be able to explain the situation candidly and that he is happy shareholders are receiving a good outcome instead of all money going to lawyers[57:21]

Reading list and recommended resources on distressed and value investing

Classic value and special situations texts

Tom recommends Seth Klarman's "Margin of Safety" as a key deep-value text, noting it's hard to find and very expensive on the secondary market[57:43]
He suggests books by the founder of Third Avenue Value (Marty Whitman) on distressed investing, including the idea that assets and liabilities can swap roles in bankruptcy[58:15]
• He gives an example: 50 below-market leases that were liabilities pre-bankruptcy can become valuable assets when the debtor can assume and assign them at higher market rents
He also mentions Joel Greenblatt's "You Can Be a Stock Market Genius" as an excellent book on special situations and security mispricing[1:00:48]

Entrepreneur and investor biographies

Tom is a big fan of biographies and autobiographies of entrepreneurs in special situations, such as Zeckendorf (a New York real estate mogul who made and lost fortunes)[59:27]
He recommends a book titled along the lines of "How to Lose a Hundred Million Dollars and Other Valuable Advice" by Arthur Little, which chronicles big wins and losses[59:07]
He cites E.P. Taylor as an example: during Prohibition, Taylor bought up breweries and related infrastructure cheaply, betting that people would eventually drink again and rolling up capacity[1:01:03]
• That single long-duration trade over about 20 years minted Taylor a large fortune, and Tom notes many such investors make a hundred million and quietly disappear from public view
Kirk Kerkorian's biography "The Gambler" is mentioned as one of the best biographies, showing his path from poor immigrant to owning major assets like the Vegas Strip and MGM[59:32]

Additional commentary on FTX, employees, and compensation practices

Tom's distance from Sam Bankman-Fried and FTX culture

Tom says he never really encountered Sam Bankman-Fried personally and was surprised when Sam became like a "Rockefeller of crypto"[1:02:13]
He notes many early FTX employees were effective altruism (EA) people rather than traditional crypto natives, which was outside his network[1:02:33]

Extreme compensation to attract talent

Tom met one FTX head of payments who specialized in obtaining payment and banking licenses worldwide, who was poached from Binance with multimillion-dollar compensation[1:03:13]
He describes Sam offering guaranteed 10-year million-dollar contracts to salaried employees, which he calls "unconscionable" and compares loosely to aggressive AI hiring battles[1:04:05]

Closing reflections and thanks

Macro observation on market narratives and spending for AI talent

Host observes that Meta's heavy offers to AI researchers significantly raised competitors' talent costs while Meta's stock rose about 33% (~$600B in value) over a few months, far exceeding the cost of offers[1:06:50]
• He attributes this to market belief that Meta is all-in on AI and will be a future winner, illustrating how narrative and perceived commitment can drive valuations

Episode wrap-up

Hosts thank Tom for coming on and note that the conversation gave them insight into a niche of distressed investing they previously knew little about[1:07:56]

Lessons Learned

Actionable insights and wisdom you can apply to your business, career, and personal life.

1

Structuring investments with both a solid "stake" (known, realizable value) and a "sizzle" (cheap or free upside optionality) can dramatically improve risk-adjusted returns in complex situations like bankruptcies.

Reflection Questions:

  • • Where in my current portfolio or business decisions am I taking upside exposure without first ensuring a clear, hard "stake" of downside protection?
  • • How could I redesign one investment or project I'm considering so that any upside I get is essentially free or very cheap relative to the secure value?
  • • What data or legal/structural information do I need to gather this month to better quantify both the stake and the sizzle in a key opportunity I'm evaluating?
2

Inventing or entering very early into a new category (like crypto-distressed or accelerators) can provide powerful tailwinds as capital and attention later flood in, even if initial returns look uncertain or strange to others.

Reflection Questions:

  • • In my industry or area of expertise, what emerging niches are still considered weird or too small that I could start building in before they become crowded?
  • • How might my decision-making change if I explicitly looked for category-creation opportunities instead of only following already-established playbooks?
  • • What is one small experiment I can run in the next six months to test whether a frontier niche I see has the potential to become a real category?
3

Starting to invest young and treating the first decade as paid tuition helps normalize mistakes and builds the pattern-recognition and temperament that can't be learned purely from reading or operating businesses.

Reflection Questions:

  • • If I think of my early investing (or career) years as tuition, which specific mistakes have already "bought" me valuable lessons I should write down and formalize?
  • • How can I create a small, controlled sandbox-like a modest personal portfolio or project-where I deliberately practice decision-making and accept that errors are part of the process?
  • • When am I going to schedule time in the next two weeks to review my past big wins and losses and extract explicit rules or guardrails for my next decade of decisions?
4

In specialized, opaque domains, an edge often comes from specific knowledge plus unglamorous hustle-doing the manual outreach, paperwork, and on-the-ground work others assume someone else has already done.

Reflection Questions:

  • • What niche knowledge do I already have (legal, technical, industry-specific) that most people around me lack and that I could pair with more hustle?
  • • Where am I assuming "someone else" has already picked the low-hanging fruit, and how could I test that assumption with a few hours of direct outreach or investigation?
  • • What concrete, tedious action-like 10 cold emails, one site visit, or reading a primary document-could I take this week that might reveal an opportunity hidden behind inconvenience?
5

Long careers in business and investing almost inevitably include legal or reputational scrapes, so building habits of transparency, respect for process, and willingness to accept responsibility is critical for long-term trust.

Reflection Questions:

  • • Looking at my current activities, where might ambiguity in roles, money flows, or conflicts of interest create future reputational or legal risk if I don't clarify them now?
  • • How could I better document my decision-making and communication so that, if scrutinized later, it would clearly reflect an intent to act fairly and within the rules?
  • • Who should I proactively brief or seek counsel from in the next month (lawyer, mentor, partner) to stress-test a gray-area situation I'm involved in before it becomes a bigger issue?

Episode Summary - Notes by Parker

How To Turn $100K into $4,000,000 with Distressed Investing
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