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

Summary

My First Million – How To Turn $100K into $4,000,000 with Distressed Investing

Date: September 19, 2025
Hosts: Joe, Sam Parr
Guest: Tommy (Distressed Investing Specialist)

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Overview

This episode dives deep into the world of distressed investing, with a focus on how savvy operators can turn high-risk, high-complexity situations—like bankruptcy claims in the crypto sector—into multi-million dollar returns. Hosts Sam and Joe bring on Tommy, a self-described "bottom of the food chain" distressed investor with unique expertise in bankruptcies like Mt. Gox and FTX, to demystify this niche and share both practical tactics and wild stories from the frontline.

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Key Discussion Points & Insights

1. Introduction to Distressed Investing

• Distressed Investing 101:

  • Focuses on purchasing distressed assets (e.g., bankruptcy claims) far below face value, with the hope of significant upside if the assets recover.
  • Tommy: "There is a whole industrial complex of large distressed investing firms out there; you have Oaktree and Silverpoint. But for myself, I kind of came up a different way... my parents were bankruptcy lawyers." (02:41)
  • The toolkit involves legal acumen, hustle, risk assessment, and identifying both the "steak" (intrinsic value) and the "sizzle" (potential upside).

• Steak and Sizzle Philosophy:

  • Stake = Margin of safety or "known value".
  • Sizzle = Optionality/upside if the situation resolves favorably.
  • Tommy: "Where the OK investors in distressed do right is they find stake... but the guys that really knock the cover off the ball and have outstanding returns generally are looking for that sizzle as well." (03:49)

2. The FTX & Mt. Gox Playbook – How These Deals Work

• Crypto's Distressed Investing Niche:

  • Tommy recognized early that crypto bankruptcies were untapped by big players, offering unique, misunderstood opportunities.
  • In Mt. Gox (2014), claims were bought for ~$80 per bitcoin (BTC was $300), betting on recovery value in both cash and BTC appreciation (11:36).
  • Joe: "So the stake there was 200,000 bitcoins sitting there...Your sizzle was maybe they’ll find more, maybe bitcoin price will go up." (13:49)
  • Some investors made over 40x their money over seven years—initially by deep discounts, later powered by bitcoin's price spike (16:54).

• The Claims Market Mechanics:

  • Most claims are sourced by hustling—using leaked lists, contacting individuals, and verifying claim ownership (23:05–24:26).
  • "You're hustling... The work here is you find the person, you contact them, you get them interested, you verify their ownership." (24:25)

3. Who Plays in This Game?

• Barriers and Players:
  • Very few "claim buyers," and they're seen as the rejects or bottom feeders of distressed investing.
  • Tommy: "Most people in the space are not super smart. It's kind of like the lowest level of distress person." (21:59)
  • Large institutional firms control the bond side; individuals have niches in claims, sometimes with symbiotic relationships to bigger shops (16:49).

4. Origin Stories & Early Lessons

• Early Entrepreneurship:

  • Tommy started flipping HUD houses and buying distressed inventory as a teen, developing an eye for undervalued assets with his mom, a bankruptcy lawyer (26:53–27:37).

• Blending Legal, Value, & Hustle:

  • Success as a distressed investor requires legal fluency, value investing chops, and relentless entrepreneurial hustle (30:22).

• Notable Buffett Story:

  • Investing is about leveraging unique competitive advantages and constantly hustling—like Buffett joining a hunting club just to buy stock from members (31:03).

5. Core Philosophies

• Shop Madison, Not Canal:

  • Don’t buy “value traps” or fakes; get genuine assets on discount, not junk that looks cheap but isn't worth anything. "Fool’s gold is a real problem in distress." (34:23)

• Start Young – ‘First Decade is Tuition’:

  • The first years are about learning, making mistakes. "You’ll meet guys with a big exit who’ve never actually invested their own money—being a good operator doesn’t mean you’re a good investor." (37:46)

6. Concentration vs. Diversification

• Going All-In:
  • Tommy is comfortable being highly concentrated in a handful of high-conviction, well-diligenced distressed claims.
  • "I kind of like it when it hurts a little bit because I'm so concentrated." (40:43)
  • Typical returns for a skilled small player: "Probably 30 to 50% [ROI], depending on the year... you could probably easily get higher than that." (41:26)

7. Downsides and Ugly Realities

• Risks and Emotional Toll:
  • Small players can get trampled by big firms in court—don't expect fairness or mercy (45:13).
  • The work is emotionally challenging—often extracting value from people’s bankrupt dreams. "You’re almost like a guidance counselor walking them through, maybe doing a deal...this person might have just lost their life's work." (45:13)
  • It's very transactional; you rarely get visionary energy from founders, more often the bitterness of loss.

8. Tommy’s Legal Controversy – Owning the Downside

• Addressing Publicly Reported Settlement:
  • Tommy candidly discusses a Delaware receivership where a court fined him for how he ran the process, moving money between bank accounts, investing, and other administrative infractions.
  • "Not my brightest moment, I would say...I feel responsible as a person in charge to do everything and do it properly." (51:40)
  • He paid significant fines but maintains shareholders saw strong recovery, and he's open about the unflattering headlines (48:21–53:54).

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Notable Quotes & Memorable Moments

• Tommy on Doing the Grunt Work:

  "There's a lot of work... you're hustling... you contact them, you get them interested, you verify their ownership." (24:25)

• On Risk and Hustle:

  "If you lose money for people, they generally don't return your phone calls." (06:00)

• Joe on Investing vs. Operating:

  "As an entrepreneur who was rewarded for taking action, you get punished as an investor for taking too much action." (38:31)

• Tommy’s Candid Self-Assessment:

  "Investing isn't...I wouldn't say I'm good, I'd say I'm OK investor. I'd also say that it's a bit of a disease." (45:13)

• On Legal Trouble:

  "Not my brightest moment... for me, reputationally, as someone who does what I do, it’s important that I try my best. But over time, I'll be able to talk about it more and more." (51:44)

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Segment Timestamps

• Distressed Investing 101: 02:41–05:09
• How the FTX/Mt. Gox trades worked: 06:30–19:29
• Industry structure and 'the claims market': 20:15–24:50
• Tommy's Early Hustles (HUD housing, baseball cards): 26:24–29:33
• Investing Philosophy & Core Lessons: 30:22–39:29
• Concentration & Returns: 40:12–41:33
• Ugly Side of Distressed Investing: 45:13–47:53
• Addressing Legal/PR Issues: 48:21–56:09
• Reading List & Influential Investors: 57:15–61:52

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Recommended Reading & Influences

• Seth Klarman – "Margin of Safety" (rare, cult classic in value investing)

• Joel Greenblatt – "You Can Be a Stock Market Genius"

• Biographies:

  • "The Gambler" (Kirk Kerkorian biography)
  • "Zeckendorf" (New York real estate mogul)
  • "How to Lose $100 Million and Other Valuable Advice" (Arthur Little)

• Edward Plunkett Taylor—a real case of rolling up breweries post-Prohibition for outsized returns.

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Final Thoughts

This episode offers a rare, unvarnished look inside a corner of investing most shy away from—the grimy, legalistic, high-variance world of distressed claims. Tommy is both self-effacing and transparent, sharing tactical detail, lessons hard-won, and the emotional realities few investment podcasts will admit.
While the returns can be astronomical, the work is lonely, the risks are high, and the line between hustle and mistake is thin. For those curious about ultra-niche investing, this is essential listening.

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For more deep dives into unusual investing frontiers and stories from the trenches, subscribe to My First Million and check the show notes for Tommy’s recommended reading list.

Transcript

[Joe]

So after Scott came on the pod and was like, I have my distressed guy in Europe. I'm like, ben, find me the distressed guy in Europe.

[Tommy]

I feel like I can rule the world.

[Joe]

I know I could be what I want to. I put my all in it. Like, no days off on the road, let's travel. Never. All right, so Scott Galloway is on our podcast. He. And we ask him, we say, you know, we heard the story that you were buying distressed FTX claims after FTX went into bankruptcy and everybody hated it. It was like, it was a disgrace. It was the symbol of a bad, bad business, a bad investment. I heard that you were buying up claims on the cheap and that those claims are now being paid out, you know, in full or even more than full because Sam Bankman fried whatever. He was doing his thing. He had owned enough assets that would, would make all the creditors whole. And so he tells the story about how he's got this guy who's brought him into a couple deals and he was talking about distressed investing.

[Sam]

And when he told the story, he like, he like kind of dismissed it. He was like, I bought 10 million do FTX shares or something like that, or 2 million.

[Joe]

2 million. I think it was, sorry, whatever it.

[Sam]

Was, it was like a seven figure bet. And he sort of just said like, yeah, I just did this one thing. And Sean and I were like, rewind what? And that's when I told the story also.

[Joe]

It was a moment where it's like, hold up, put some respect on the podcaster's name. I mean, I think a lot of people make fun of Scott. There's like the inverse Scott Galloway index and stuff like that, basically about his bad calls he's made in his life. And I think in general people don't really realize. And Sam, you do a good job of this. You're like, actually you were an entrepreneur who sold a company for $100 million. He never really talks about it. That. And then he done some interesting investing stuff. And I just feel like, because almost he's so good at the gift of gab, I think people sort of bucketed him as all talk, no walk. And so it was interesting to hear one of his interesting walk stories. So then I got in touch with Tommy and we, I say, tell me about this, I'm interested. What are you doing? What are you. What's going on? And he had some interesting stories. So I wanted to invite him on the podcast to do two things. Teach us about this category of distress with both me and Sam are pretty much novices in this. Like, we are, we're missionary guys. We are. We like vanilla. Like we, we do, we do very basic stuff. You know, when it comes to business and investing, this is more exotic and it's got me interested. I want you to start with a little crispy description of like, what's the big idea with distressed investing? What are you trying to do? How, what, how do we wrap our minds around this? And then I want to play a game called first, best, worst, weirdest, which is where we go through maybe the first play you did, the best play that ever worked out for you, the worst deal that went sideways and then just something where got weird while you were doing it. But I want first just. Can you just make us a little smarter? Teach us a distressed investing 101.

[Tommy]

What are we talking about, man? Okay, so I am the bottom of the food chain of distressed investing. So there is a whole industrial complex of large distressed investing firms out there. You have Oaktree and Silverpoint and Fairlawn and you can you guys Apollo. Everyone's heard these names. Or maybe if you're, if you're all business and investing, I guess. So for myself, I kind of came up a different way, which is my parents were bankruptcy lawyers and I sort of learned I knew a lot about bankruptcy. And generally what you're trying to do is you're almost like value investing. And the toolkit is, you know a lot about the legal process. The trick that I've from studying a lot of distressed investing is, you know, and there's this famous Michael pricing, which you guys have probably heard, but if you haven't, it's sort of. He says when you're investing, you always want like the steak and the sizzle. I think what where the. Okay investors in distressed do right is they find stake. You know, you find something and maybe it's a double. But where the guys that really knock the COVID off the ball and have outstanding returns generally are looking for that sizzle as well.

[Joe]

Stake is the kind of. The known. The known value that's there. It's the substance, it's the thing that will make you give you a margin of safety when you buy. The sizzle is the upside of how good this could be if things go right. But you. But you still have the stake even if things don't go great.

[Tommy]

Exactly. And that's even what the whole pitch on FTX with Scott was, which is you're buying a stake, you're buying 20 cents, you know, you're going to get 30 cents in cash back plus you have all this crypto sizzle and unless you're, you know, I don't want to say a Luddite, but unless you're just really, really aggressively against crypto. There was a lot of optionality built into that. And if you look at the history of distress, some of the best ones have been financial service bankruptcies, Ponzi scheme cases as well as like the dot com cases were actually pretty good. You think of things like Com Disco, which was a famous large bankruptcy, and a lot of those actually they kind of petered out because there wasn't as much debt. It was just equity values went to zero. So. So if you look at the history, they can be pretty good. And that was kind of the playbook was, as my friend would say, who's a pretty smart investor, he says you avail yourself to the optionality, you know, so because you sort of set yourself up to either buy that for, for free, you get it for free, or buy it extremely cheaply. So that's what we're doing in ftx and that's what we really try to replicate in almost everything we do. No matter if it's crypto or just general distressed.

[Sam]

Is your company just you? Are you just a guy or do you have a team?

[Tommy]

I'm just a guy. I mean, I have a small team. I think Scott calls me a lifestyle business guy, but I would describe it as what's nice about what I do is I get to choose when I work, how hard I'm working. If there's no deals, I don't have to work on stuff. And also because I'm in a low cost jurisdiction, you know, that passes through to my clients. So, you know, is Scott paying the usual fees that you would pay if you went to a big distressed firm? Probably not. I mean, maybe because they want Scott as a client, but for the most part the fee structure would have to be higher. Your cost structure is higher.

[Sam]

So can I dumb this down? Like in a way, like I'm kind of a caveman and you can tell me if I'm right. But basically you find distressed deals, you convince rich people to buy them, and you take a small cut. Is that right?

[Tommy]

Yes. Or I invest my own capital, but yes.

[Sam]

Or you invest your own money and you're so good that people come back over and over again.

[Tommy]

Well, if you lose money for people, they generally don't return your phone calls. They might call you, but they don't pick up when you call call.

[Joe]

So let's walk through an example together and I Think we should use FTX because it's a pretty well known company. It's kind of what we were already talking about. So walk me through the origin story of, of the FTX deal so that we can kind of see like a, we can get like a, a blueprint of the type of thing that you're going to try to do. What is the type of thing that you do? So where does the story start with your FTX interest?

[Tommy]

Yeah, so we were, I had already been involved in a number of crypto distressed situations and I should back up to just say as a, as a backdrop, like having studied so many different investors throughout my life and kind of that's what I was really always interested in is principally just being an investor. One of the things you'll realize is the guys with really good returns also invented a category. So I was very interested in crypto distress as a category and I thought, hey, crypto's the future. No one's willing to touch crypto. So back in 2014, 15, I was already looking at Mount Gox, you know, myself and at the time my partner. We were the largest buyer of claims in Mount Gox.

[Joe]

But, but before you tell the Mount Gox story, I just want to double click on you said some of the best investors, they ended up like actually now when you look back, they kind of had invented a category. Can you give a couple of examples of people of guys who did that?

[Tommy]

So like Howard Marks is the, is the prototypical example, right? Like he kind of invented the whole idea of like institutional. Not just him, there were other people of course, but he was, and in, you know, a very early and basically him and a group of people invented the idea of institutional asset class to distress investing. So what that does is it compresses, it lowers, you know, cost capital and really brings a whole pool of capital that we've never invested in this. So long term returns might go down, but it's because the, the actual, the actual cost of capital is coming down. And so your, your, your tailwind returns are just enormous.

[Sam]

And what does that mean? Does that mean that like institutional investors, they, they were like normally afraid of this? And Howard was like no, this actually makes a ton of sense and it' safe and here's why. And so he convinced large institutions to buy into that. Is that what you're saying?

[Tommy]

To allocate. And the same thing with like early venture guys. I mean, I guess before you have like the 70s and 80s, I mean, Alan Patrick and people like that, these were guys that really invented the category. And of course they have huge firms now and you know the valuations for startups. But it's like it's this wall of liquidity that creates these kind of tailwind returns which are fantastic. You want it. I mean you kind of like that's the most amazing thing is catching more of those weight.

[Joe]

Like YC is a good example of this. Or YC basically created the category of the, the, you know, the accelerator, right. It created the category of this pre seed, pre everything, pre pre product, pre revenue, pre traction investing. And so that really wasn't a popular category. Now it's a whole industry. There's angels and there's super angels and their seed funds and pre seed funds. There's a whole industry now that specializes in that category. But it really started, even Paul has said this as an experiment. He was curious, like how early on could you fund somebody? Could you fund a student? Could you fund a grad student? And you know, he sort of thought it might be too early, but he wanted to go see what happens when you do that.

[Tommy]

Yeah, and even, you know, for me, when I was start starting my hedge fund, my very first, when I was really a kid, some of my early investors were Goldman partners that were partners when it went public. And they were all sort of early LBO guys, like levered buyout guys before private equity became a real institutional asset class. And the returns were just insane, like insane returns.

[Joe]

Hey, real quick, our sponsor for today, HubSpot, actually did something pretty cool. If you like money, stuff like this, you like investing wisdom like Warren Buffett or Mohnish Pabrai. Well, they actually put together a nine investment principles document, just a free document you can have of frameworks that they shared when they came on the podcast. You can get it right now. It's actually just a mental model that separates I guess the elite investors from the average investors. So you can get it right now. Scan the QR code or click the link in the description. All right, let me get back to the episode. Okay, so let's go back to your story. So you're saying you got excited about potentially being the first in a category of crypto. Distressed. Distressed already was a thing. But nobody, most people were afraid of crypto in general. So especially the institutional guys weren't going to go there. So you're like, okay, maybe I can carve out a niche of distressed crypto. We're all looking for a thing. This could be my thing. And you're saying the FTX story actually started before that, before FTX it was Mt. Gox. Sam, are you familiar with Mt. Gox? Do you know the rough story here?

[Sam]

Yeah, it was sort of coinbase before Coinbase, but it had some nefarious characters involved.

[Joe]

Yeah. So there was a huge kind of like sort of hack problem with, with Mount Gox. So Tom, what happened with, with Mount Gox? What did you actually do there?

[Tommy]

Let's talk about you in bag. Yeah, so. So Mt. Gox was really the first. It was almost 80% of the volume at the time in 2014 when it went under. And it was the largest exchange, I mean, other than going peer, you know, peer to peer and going to a Starbucks and buying bitcoin. Like that was where you traded bitcoin. And they had a pretty aggressive hack. They tried to cover up the hack, which was the real crime was the COVID up. Eventually they filed for insolvency in Japan and what's called a Chapter 15 in the States. That's kind of irrelevant. That just recognizes the foreign proceeding as the main proceeding. And you know, you could buy claims for a while. You could buy them for about a fifth of the, the, the market price of bitcoin. This is when bitcoin is like $300. And then in 2018, the estate actually sold some bitcoin to have enough to pay people the cash value of their claim at the petition date. When I say cash, I mean Fiat. I'll try to use Fiat. And so you could buy below the cash. You get the bitcoin for free.

[Joe]

Sorry. So just, just to, just to slow this down for a second, when you say buy the claims, what you're saying is I was a customer, let's say of Mount Gox and boom, I lost my money. It's insolvent. I don't know what's going to happen with this. It's going to go through a bankruptcy process. I'm hoping maybe in a few years I'll be able to get something out of this. And guys like you knock on the door and you say, I'm so sorry for your loss. You know what, I'll offer you something today for the rights to that claim you have as a customer, as a creditor in this bankruptcy thing. It's going to take a long time, it's a little uncertain, you know. So I'll give you. And in that case, like for every kind of dollar worth of claim, what were you buying the claims for at Mount Gox?

[Tommy]

Yeah, so the original trade, bitcoin was at about $300 and we were buying the claims for about $80 per bitcoin.

[Sam]

Were you a bitcoin person or were you just a. A distressed person?

[Tommy]

I would say yeah. I studied economics. I remember reading about bitcoin when it was like $10, and I was like, wow, that's cool if it works. But other than that, I had no. I was like, this is pretty crazy.

[Joe]

All right, so dumb question. They get hacked, so they don't have the bitcoin. So what is underneath? I get in the. In the FTX case because he had invested in all these underlying companies, and they still had their. Some assets. What did Mount Gox have that made you think that the claims would be worth anything?

[Tommy]

So. So just if you want to. If you want to do it in bitcoin terms, there's about 800,000 Bitcoin that was supposed to be there within a first, like, month or two. They basically found 200.

[Joe]

Bitcoin found 200 or 200,000.

[Tommy]

200,000.

[Joe]

Okay, so they found 200,000 of the 800 that's supposed to be there.

[Tommy]

Yeah, Right. So now you know. You know, this is. This is, you know, distress. Actually, the math. Even though I studied math math and distress is always super simple, like 200 over 800. Okay, you got 25 cents. So guys are going to get back 25 cents. We're basically offering them five cents. This is on the Bitcoin dollar.

[Sam]

You bought the assets after you learned that he magically discovered. Okay, so you're. So you're like minimal downside, potentially high upside.

[Joe]

That was. So the stake there was. They got 200,000 bitcoins sitting there today, and it's $300 a bitcoin. I can buy it at 25, you know, for.

[Tommy]

For.

[Joe]

For 25% of that value. So that's your stake. And your sizzle was maybe they'll find more. Maybe bitcoin price will go up. Is that right? Is that the right way to think about that?

[Tommy]

Basically, yep. Maybe they'll find more and you get a 5x return on Bitcoin. That was the original pitch. And I remember the first hedge fund I pitched it to, the guy literally laughed me out of his conference room. And whenever I saw him around town, he would just be like, bitcoin. I mean, it was like 2015, to be fair.

[Joe]

But he's like, hey, look, it's the bitcoin loser. I'm imagining, like, the big short here, because I don't know anything about this world. So my only reference point is movies. So I'm imagining you're Michael Burry. You're sitting in your room by yourself. You're pouring through the papers and you're like, you're like, pen. And you're like, you know, doing the math. You're like, 2,000, 200,000, 800,000 25 cents. We get five cents. The equations are popping out of your head. And then you go to the hedge fund and then they sort of laugh you out of the room and they're like, listen, do you want to just get lunch? Because we're not doing this. Do you want to make something out of this hour? Were you just getting laughed out of the room in that way?

[Tommy]

Well, I remember the name of the fund. I won't mention them. They're out of business now, if that's any. This is any concept, but name names.

[Joe]

Yeah, they're dance on the graves.

[Tommy]

The guy won't remember. But the, the firm was southpaw. I don't know what happened to the guys at southpaw. It was like a two billion dollar hedge fund. Anyway, it doesn't really matter. It was forever ago. And to be fair, fair to the guy, like, I said, oh, there's a crypto exchange. You can buy claims for a fifth of the market value. He's like, crypto, you mean like bitcoin? And I said, I said, yeah, yeah, bitcoin. He was like, you want me to buy bitcoin? And I was like, well, you know, the claims get five times your money. And he just like, he started slapping his knee. He was like, tom, that is the funniest shit I've heard all week. He was like, he was like, what else are you working on?

[Joe]

And I was like, what's the real idea?

[Sam]

Were you in Penn State? Were you an employee somewhere? Were you on your own? How much did you buy?

[Tommy]

Hedge fund. Okay, so I had a small hedge fund. So I bought about $200,000 worth. Like, literally nothing. But for my small hedge fund, that was like. I was like, well, it's like 10% of my money. I gotta like, you know, it was only. I only had so much. I mean, it was a really small hedge fund I was running. I said, okay, I can't. This is like, you know, I could get in trouble. I can't, like make this too big. So I like to call some of these guys. I know. And when you're, when you have a small hedge fund, the nice thing you can do is you kind of have a symbiotic relationship. Like you can do a million out. Like, if you find a $10 million deal you can get, I don't know, I'm just making up a name. Oak Tree. You call Oak Tree. I mean, they won't do $10 million deals, but you say, hey, you want nine of this, I want 1 million of it. You don't even have to pay me anything. I just need you because I need the money. So you make friends and you kind of figure out ways to get symbiotic relationships with some of these cats. I mean, similar to probably Indian trees. Like the coop petition, you know, if you want to dress it up and make it sound fancy. But I mean, that's how I spend my whole career is like co op coop petitioning with like all the big distress firms. So they call me with tiny stuff that they can't do and I call them with big stuff that I can't do. And I asked for either allocation or a fee or something, but generally I'm asking for allocation because I'm not like a registered broker.

[Joe]

What did you end up making on the Mt. Gox trade? How much did you end up getting in? And what was the. What was the end. What was the out?

[Tommy]

Yeah, there were across a number of different SPVs and we had a later, like, I'm going to get to the answer. We had a later hedge fund that like was buying all the way up, so they probably made like two, three times their money because they were literally buying all the way up through the distribution. Like they'll still buy claims to this day, but our original investor made about 38 times his money. Or actually it's more than that now. It's over 40 times as money.

[Sam]

Over what period of time?

[Tommy]

Oh, yeah, like seven years.

[Joe]

And is that because bitcoin price appreciated? Basically, yeah.

[Tommy]

So some of it is about 5x of it is the discount and then the rest is their appreciation.

[Joe]

Right.

[Tommy]

But he put it on in 2000. The big, the guy I'm describing, who was our real first outside lp, outside of the fund, which, which liquidated and we sold claim and I think that claim we bought, the original claim we bought from a Googler. Actually. It was pretty funny. And I always joke because I was a kid and you know, I had my standard documents, but I didn't have documents for like a Japanese court. And he was like, so how do we do this, Tom? And I was like, you know, I don't know. And he said, well, why don't I ask? So I always joke that Google wrote my original purchase documents for, for the purchase of, you know, like, I don't know, the Name of the firm, Step Shoe and something or some, some firm that worked for Google. Because this guy was like a big up at Google. But yeah, about 40, 40 plus times. But a lot of it is appreciation. But the really interesting thing about that guy that originally did the deal with us, this family office guy, is we were buying the bitcoin for free because he put that trade on in 2018. That was the big short moment because you were getting it for free.

[Joe]

Explain that. Why did you get it for free?

[Tommy]

Okay, because the rough math at the time, in 2018, Bitcoin was like 10 grand, 12 grand. Ish. And the trustee sold a fifth of the bitcoin. So he sold about 40,000 bitcoin and brought in about $600 million of cash. And so there was $6 million of cash and there was about $3 billion of crypto or two and a half billion dollars of crypto. We were buying the claims for below the cash value. The clash. Look through value on the claims. So we were buying for about a $400 million valuation. There was 600 million of cash and there was about $2 billion of crypto. So that was the time when I was like really banging the table. Because before that there was all bitcoin and it was, it was cheap, but it was quite directional.

[Joe]

Why do they sell it for below the cash value at that point? Is it because there's still a time delay? Is there an uncertainty?

[Tommy]

Yes. And the. There was uncertainty around whether who got the uplift in value. So in 2018 there was this big argument. Who gets the uplift in value? Does it go back to Mark Capellis, like the guy that kind of didn't do us right? Or does the uplift in value go to the customer account claim? It's the same thing happened in ftx. The same thing happens in all the crypto bankruptcies. Who gets appreciation and value? Post petition. Petition meaning the date the company files for insolvency.

[Sam]

As you know, I'm an absolute outsider. I'm learning about all of all about this right now. But like Mt. Gox and particularly FTX, those were pretty big news headlines. And as an outsider, when I see this I just think, oh, I'm sure, like there is no opportunity because everything is being taken care of. Like they're going to catch the bad guy. But then also all the big dogs are already after this. Like there's no way to make it money. There's no opportunity. Not me. Someone else is probably like on top of this. But the way that you're Describing yourself, maybe this is like you're underselling yourself, but you're kind of describing yourself as, like, just a smart guy who just, like, kind of gets in the mix and figures it out.

[Tommy]

Take out the smart part.

[Sam]

Well, you're doing it again. You just. You just did it again. But you. Like, how many. Like, literally, how many human beings. Like, how many human beings are actually getting after this? Like, for the Mount Gox? And, like, who do you. Who do you phone?

[Tommy]

Yeah, a lot of questions in there. Okay. So you're right. In some sense. All the big firms have a corner on the. Like, the bond. If you want to try to play the bonds and stuff like that. You can't open up a Fidelity account and trade distressed bonds. You call them and you say, oh, can I get a quote on this bond? And they're like, well, that's in default. You're like, I know it's in default. I'm asking what the quote is. And they're like, oh, we don't trade in defaulted bonds. They're way too risky for you to be looking at. So there you'd have to have, like, real prime brokers. And, you know, you have to have serious money to play that game. Also, you have to worry about getting run over by big distressed firms.

[Sam]

Sort of actually just like in. In the big short, where the two guys who had the garage hedge fund, which it was big. I mean, big for a regular guy, it was $20 million of their own money they were playing with. They were, like, laughed out of Chase or something like that.

[Tommy]

Yeah, yeah. The same thing with the Rotors markets. I mean, you have to have serious setups and serious, like, calm lines. You have to have lines with your. With your PBS to be able to do this stuff. And so I knew the other side of the market or the kind of. The. That's why I said on the lowest rung of the totem pole, which is the claims market. So there are probably, like, 10 firms out there that really do trade claims. And, you know, I say this lovingly because I'm one. Most people in space are not super smart. It's kind of like the. The. The. I don't know, in 19, maybe it's where, like, the. Oh, gosh, I'm gonna offend somebody like the network administrator. I don't know, like the kind of, like the lowest level of it person. This is like the lowest level of distress person. Yeah.

[Sam]

Like the rejects a little bit.

[Tommy]

Yeah. And so. But I kind of like hanging out with the rejects. What can I say, right, anyway, so, so you're, you're kind of like a, like what's that? You know, they're of a shark and they have the thing that like lives on the shark, the food chain. Like a symbiotic. Yeah, you're like that little thing that eats the stuff that falls off the shark and the shark kind of likes you because you keep the barnacles off it or something. And that's you as a trade claim buyer. If you befriend some of these larger trust firms. The cases we're largely talking about, when you have cryptocurrency exchanges going under and things like that, you're talking about customer account claims and customer account. What's nice about that? Like both in ftx and then if you go back to Mount Gox is the docket was largely customer account claims. And so it's all trade claims. There's not a lot of structured debt. And so certain setups are just not appropriate for a small person or home gamer to be trying. But you know, you can literally buy claims. There's no, nothing that stops you.

[Sam]

But do you go, do you, do you put out a press release and you say, hey, all 100,000 FTX or Mt. Gox claim holders or please email me and let's talk.

[Tommy]

Right.

[Joe]

If you've been wronged by this curly haired man, call me, I'm here for you.

[Tommy]

So, okay, so, yeah, so, so in. Okay. Mount Gox is a good example. Fortress was my competitor on that docket and they were buying up claims too. Pete Brigger is a big bitcoiner and he's one of the founders of Fortress and they were buying up claims and they were my competitor on that case. They were the only two people really buying claims. We almost worked together, but. But we're still friends and everything. And yeah, we're still friends. And they actually did do like press releases and tried to get people that way. For myself, this is going to sound ridiculous, but the entire 14,000 credit, you know, 14,000 creditors or customers was a leak list. So one of the things about Distress. Yeah, so you were able to use the leak list to actually find people. My favorite is when you find somebody and his name's like some random name like Sven Erickson, I don't know, make up some. And he's in tech and he on LinkedIn, he's like, he's part of the bitcoin group. And then you ping him and you're like, hey, do you have a Mt. Gox claim? If you do like we could buy it from you. And he's like, how did you find me? And you're like, well, let me see. You're under 35, you're into tech, and you're part of the bitcoin group. I just. And they're. They're only three with people with the same name. So you're hustling.

[Sam]

Like, this is work.

[Tommy]

Yeah, yeah, you're hustling. There's a lot of work.

[Joe]

The work here is you find the person, you contact them, you get them interested, you verify their ownership and that they haven't already sold the claim to somebody else. There's, like a whole bunch of work that you do so that guys like me could just invest in. In. But just buy the claim. And we feel like, all right, you've done the diligence on this. You've done the cleanup work on this. That's what. We would have to trust you. And that's why you get paid a carry or a fee.

[Tommy]

That's why people from investors. Yeah. And you know what's interesting is. So it is a lot of grunt work. That's why I think sometimes it gets like, the more, like, you know, guys holding footballs who, you know, played. Played hockey or something in college, you know, there's not. It's not like the. The brainiest side of distress, but actually, there's a lot of intricate, like, I'll call them corner cases, like, claim corner cases, where you really do need to know a lot about the legal side. I mean, with ChatGPT, it helps a lot, but still, it helps to have a bunch of experience. And, you know, prompting chat is just as important as anything. So the more, you know, the more powerful it is.

[Sam]

But it seems like a good life for you. Yeah. You're hanging out in Italy. It seems like you work project to project, and what's the upside here for you? Like, can you make tens of millions of dollars in one year?

[Tommy]

Yes. I mean, I don't know. Not. I mean, seven figures, definitely eight figures, is pretty hard. What happens is you get people that push back on your fees. They say, like, oh, you're not in New York. You're not a real firm. Like, it's just a few guys. Like, you're just a broker and. But, you know, you build a reputation over time, and then people will pay you more and more and. But you can definitely make seven, eight figures, especially in a good year, especially if you have something work out and you ever promote on it.

[Joe]

So let's. Let's walk through that game I talked about first, last, best, worst, weirdest, whatever. So what was the first life? Maybe you were a kid, maybe you're in middle school or something. Like, Sally didn't want her bike anymore and you're like, oh, your trash is my treasure. So what was your first foray into buying distressed assets?

[Tommy]

Okay, so my parents were the more bankruptcy lawyers or lawyers. My mom specifically was a consumer bankruptcy lawyer. So I used to hang out, like, at the courthouse as a kid and, like, hang out with the clerk's office and with like, us trustees and stuff. So I kind of grew up. Like, really?

[Joe]

Did you like it or she just, like, didn't have daycare and you had to go?

[Tommy]

Yeah, basically she didn't have daycare. A single mom, basically, like, no daycare. Tom's got the clip on tie and he's in court with me, so a.

[Joe]

Lot of clip on ties.

[Tommy]

Yeah, my. This is my associate. Yeah. So. And this is like paper files everywhere. So no. So I grew up kind of hanging around. It would always hear about stuff from. I remember when I was a kid first hearing about, like, HUD houses. I was like, what's a HUD house? What's that? It's like, oh, you can buy these houses and you know, they're really beaten up, but you can get really good deals. So I remember my brother and I flipped a HUD house. My mom put up the capital. I have no idea what the numbers were. We probably bought it for 20 or 30 grand that, you know, my mom put up and we probably sold it for 60. We did the demo demolition ourselves, which is a. You know, I have to say, God love my parents. I'm glad I wasn't injured severely. You know, doing demolition when you're 14 is probably a bad idea.

[Joe]

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[Tommy]

So these are the kind of things I was talking about when I was a kid, these were. These. These deals would come up. You know, there was a whole thing where they. The baseball card industry went through this. This. They were. They were printing cards. They said they weren't printing. I don't know if you remember this, Sean. And. And there was a bit of fallout in, like, the collection market for baseball cards. And I'm sure a few of them went under. Probably, like, the microbrewery thing, where there's people who overmade microbreweries. And then I've seen a bunch of microbrewery bankruptcies. And I remember seeing it was the entire shop was $3,000, which is a lot of money when I was a kid. And my mom was like, do you want me to put up the money and you buy the whole thing? And I was like, we can do that. I was like. So I would hear about these things as a kid, and I guess it probably colored my. My imagination for what was possible. And then I kind of like, between that and, you know, I was really obsessed. So I started. I guess I bought my first stock when I was 11 or 12, I can't remember, but I was sort of obsessed with Warren Buffett as a kid. But. And then. And then what happened, guys, is over time is I sort of melded the two things together. It's like, what would Buffet do if he had the specific knowledge, you know, the Volt term, like specific knowledge of bankruptcy, plus what he knows well, which is like, you know, valuation and sort of like deep value investing or value investing. So I kind of melded those two things together.

[Joe]

Yeah, it's almost. I actually think there's three. There's. You have knowledge of the law and not a. Not a. Not as fearful. It's like I speak the native tongue of bankruptcy court, right? So it's like, okay, I feel I can get more certainty than the people who hold the claims. Right. Like, I have a better idea of where. How this will play out and how long it'll take to play out and where the puck will land. So it's like knowledge of the legal code, deep knowledge about. Deep knowledge and interest in deep value investing, which I like admiring Buffett and Howard Marks and a bunch of these guys and. And really learning from their playbook. And then the third is just the entrepreneurial hustle to go cold call, knock on doors, raise the capital, get the claims, do the verifications, go travel to, you know, wherever, and. And make it happen. Right. So you kind of needed that Venn diagram to be Able to do what you do. That's what I'm hearing.

[Tommy]

And I think for me, like, I got kind of obsessed with the adventure of investing. Like, for me, you know, like my very first, like, real distressed investment was this thing called Ethanx Energy where people had all these restricted physical shares. And so, like, I literally drove around like the Northeast and bought shares off of people. And like, we'd go into the local bank and get things, medallion, signature guaranteed. And I was like, oh, I'm just like Buffett in Snowball, where he's like going around and buying shares of the hunting lots.

[Sam]

He's like knocking on the door of Geico, like, can you give me a tour of the office? And like, trying to like, figure it out. Yeah.

[Joe]

If somebody hasn't read Snowball, can you tell us a sort of a Buffett hustle story or a Buffett devalue distress story?

[Tommy]

Gosh, I mean, I must have read it at least 10 years ago. So, yeah, I mean, he was famous for. There was some security. I can't think it was a, a hunting club that he joined just so he could buy stock in this. I mean, maybe you guys have heard the story, but there was like a hunting club that also had oil on its land. And so it's probably apocryphal story where he like, you know, gets all the hunting gear and like joins the hunting club. You know, Buffett doesn't give a shit about hunting.

[Joe]

Hello, fellow hunters.

[Tommy]

Hello there. And he's got his rifle on his. You know, like, you don't suppose you want to sell your, some of your shares, do you? So I can't remember exactly what the story was, but it was something along those lines. And I think it was like, you know, you could, you know, now, you know, one of the things I took away from Buffett is you're always using your unique competitive advantages just like in any business, right. And, and, and every, all the lessons from business kind of apply to, in just pure investing and, you know, using those new competitive advantage. At the time there's all this informational arbitrage that's probably less and less. Now there's still scuttlebutt, meaning like making phone calls and channel checking and like getting out in the field and hustling. And hustling goes a really long way. But, you know, now you have other advantages, like you can invest in Japanese insolvencies. Buffett couldn't invest in Japanese insolvencies because you didn't have Google Translate. So, you know, you just have to Keep pushing the boat out. To me, that's the real lesson of Joel Greenblatt or Warren Buffett. Joel Greenblatt was like a famous specialist investor, which is, you know, you play the field and you use everything.

[Sam]

We just talked to Howard Marks, and both Sean and I have read a bunch of Buffett stuff. You're doing something I have. I, you know, I don't want to. I don't know how great of an investor you are, other than, like, this one topic is really fascinating to us, and you seem wonderful, but you're doing something that they do, which is you use really great language. So you've used a few phrases. You've used a few really good phrases that helped me understand things a little bit more effectively. So you're like, I just. You just got to keep pushing the boat out. Or you're talking about, like, scuttlebutt. Like, you've used these words that have done a really good job of explaining what you do, which in my head means you have done a very good job of creating a framework on how to think about this type of stuff.

[Tommy]

For me, I think it's all about valuation. Just how you manufacture. The valuation is like the sauce. And like, how you, you know, you're making your sauce. Like, you guys are doing venture deals. Like, so much of it is probably access and connections and reputation and being able to get allocation, but also being able to vet founders or vet VC firms and like, you know, and also knowing what the docs look like. Like, all that kind of like. Or not a Venn diagram, but that. That whole, like, soup that makes it work, that's that we have the same thing and what we're doing. I mean, Howard Marks is an absolute legend. And, you know, he has a very famous. I mean, I'm sure he talked about Bruce Karsh, who was. Did, you know, a lot of the investing. And Howard Marks is like the great communicator. I mean, the guy. I mean, that's one of the things I think people don't appreciate is you can still work on investments, make really good returns, but those guys are like monster communicators. Like, they are great at fundraising and they're great at what they do. So they have multiple skill sets or they have partners to back them up.

[Joe]

You sent us a list of your core philosophies, and you told us the first one, the steak and sizzle philosophy that you live by. Tell us about some of these other ones. So one is shop Madison, not Canal. What does that mean?

[Tommy]

Okay, I stole that one, I like it. Because what. What deep value and distress the mistakes they make is. They sometimes buy, like, value traps. They give a real crap. The idea is you want to buy real stuff that is cheap, that could be good. So, like, the phrase is, you know, you don't buy, you know, handbags on Canal street because those are all fake. You buy them. You try to get a good price on the Madison Avenue when they're discounted. Not, you know, because, you know, fool's goal is a. Is a real problem in distress. Do you say, oh, well, this guy put $200 million in it. It's only 10. It's like, yeah, but it's worth zero. So you. You gotta be careful of. Of this kind of bias that runs into, like, oh, it's such a good deal. You're like, is it? So, I mean, you know, assets become liabilities, and liabilities can become assets when you get in a restructuring situation.

[Joe]

All right, let's do the next one. You said start young. The first decade is tuition. I love this. This could apply to any field, by the way. I think that's a great phrase, just in general.

[Tommy]

Well, you guys, come on, y'. All. Y' all know a lot of this stuff. But for me, I. I started when I was 12. I was terrible. I think the first. The first. I could tell you the first stocks I bought, I bought Home Depot because Bob Nardelli, who is passed over for whoever, I think maybe Jack Walsh or maybe emt, whoever became the CEO of ge, came over to Home Depot and he was going to George Home Depot. Well, that didn't work at all. And, you know, so I wasn't investing at all in valuation. I was based on a story in hbr. There was this huge article in. In a Harvard Business Review, and I was, like, 12 years old, like, reading this, being like, oh, yeah, ethos. I don't even know what this word means. He's gonna change the ethos, the culture was like the first stock. Yeah. I was like. I was like, ethos. What's. I never heard of this word. Sounds smart. So that was like, the first stock. And the other one I bought was inco, which was a large nickel producer in Canada. That actually did work out. It was based on, like, the rising price of nickel I read about in Foreign Affairs. And the third one was from a Forbes article. It was emc, which is a chip manufacturer, which. I can't remember what happened to that one. I think I. You know, the thing is, is, like, you do this thing about stocks, especially when you're young and you've never done anything, you buy them and you're like, okay, I bought them. All right then day two, you're like, now what do we do?

[Joe]

My kids are, I have a one year old, a four year old and a five year old. And for my four and five year old, I just, like, they were trying to earn something they wanted, like ice cream or a treat or a toy or whatever. They're like, if we do this, can we have that? And I was like, here's what I'm gonna give you. I'm gonna give you $100. They're like, $100. I was like, I'll give you $100 each, but. Cause I was teaching about, like we were at the, we were like waiting in the parking lot and I was explaining what a grocery store is. I was like, yeah, so somebody owns this business and then they buy the stuff and then they sell it to us. I was trying to explain what a business failing miserably. I was like, oh, my God, why is this so hard to explain what a business is? But I basically told them, I gave him $100 each, and I, this weekend I'm going to present to them five stocks of products that they use and buy. So, like, we bought a Nintendo Switch that's like, here's Nintendo stock. Here's. And I'm going to let them pick and let them invest it in an account where they're going to start to see whether it's going up or down. And I'm going to have them explain in their, whatever their logic is of why they picked, you know, either Nintendo or whatever, you know, Yamaha or whatever, whatever, whatever stock that they pick. And then they're going to get to like ride the ups and downs of this. So I'm, I'm with you on stardom. Young, even younger than, than you, you would guess.

[Tommy]

Well, yeah, I just think that, you know, I don't know, you know, my own experience. Like, you know, you'll meet guys, this is a common thing. I'll meet guys I don't know when I'm here or on holiday or wherever, and they'll have an exit. Like, I met a guy who's like a very early employee at Airbnb and He had probably $80 million or $100 million, but he's never actually invested money. So now he's 45, probably 50, and now he's like, you know, I'm so good at this. Like, I'm gonna buy some duolingo and I'M gonna, you know, do this and do that. And I'm like, well, you just need to respect the fact that you've actually never invested money. I mean, you are amazing, operator. And you got on a rocket ship. That's awesome.

[Sam]

Well, we say that all the time on here, which is. There's a huge difference between investing and earning, like, via a company.

[Joe]

Not just a difference, it's almost like the opposite. It's like a power lifter that then goes and tries to do ballet or something. It's like, oh, yeah, operator. It's all about action. It's all action, action, action. You got to do stuff, right? You're trying to do as many things as you can. Be super productive as an investor. It's like, sit on your hands. Inaction is your friend. All the money's made in the holding, the waiting, the observing. And as an entrepreneur who was rewarded for taking action, you get punished as an investor for taking too much action.

[Tommy]

Yeah, and I'm, you know, just. It just. It takes a ton of experience to be good and, well, even to be okay.

[Sam]

A question that Sean has asked me before that I love, which is like, basically, how do you invest your own money? And I want to ask you the same. Do you, since you are a professional investor, do you have 100% of your portfolio in a variety of deals like this, or are you doing any passive stuff? Or is it all active?

[Tommy]

It's all pretty active, yeah. I don't. I don't, you know, like, you. For me, it's like tax advisors, great people that, like, you know, estate planning advisors, great guys that want to manage my money. No, thank you. Partially because I enjoy it, but also, I don't think that I've reached the capacity where I have more money than I know what to do with. You know, I think that I can still find a lot of deals. I mean, you know, your opportunity set when you have, you know, a million or 10 million or whatever is just a lot better than if you're, you know, if you're at 100 or for it. You're, you know, the optimal. The optimal. The optimal strategy changes based upon your capital base.

[Joe]

So when you say active, do you mean it's all distressed? It's like your specialty. That's where you're putting most of your. Your net worth, the majority.

[Tommy]

Yeah, most of my money into our own deals. Right.

[Joe]

When you. You were saying, like, you know, early on with your hedge fund, you were putting 5% into that deal. You weren't allowed to because you have as investors to get, like, you know, as crazy as maybe to match your own conviction in the deal. Now that that's not the case anymore. Like, how concentrated have you gotten? Like, do you. Have you gotten to any. Have you ever been at a point where you're just, like, insanely concentrated?

[Tommy]

I kind of like it when it hurts a little bit because it's so. I'm so concentrated, but maybe that's me. I don't know.

[Sam]

I mean, that is.

[Tommy]

I feel like it's a little bit like an entrepreneurial bent. Like you kind of. If you're not pushing yourself, then. Then. Then I wouldn't feel comfortable with it. I mean, I understand if you have a big exit. Yeah, for me, I'm constantly investing into other deals, friends, deals. I have pretty. I feel like I have pretty good deal flow in the distressed area, and then the claims work. I wouldn't say it's free money, but you can almost reliably compound your money on a small base, you know, like a few million bucks or something. You can reliably compound that at pretty aggressive rates.

[Joe]

What do you mean by pretty progressive rates? What is that? Is that 15? Is that 25? Is that 30? What are you talking about?

[Tommy]

Just, I don't know, probably 30 to 50, depending on the year. You can. You could probably easily get higher than that.

[Sam]

There's these guys, Sean, like, in. I used to live in Texas, and they're guys who, like. I didn't know what their job was. I'm like, I don't know what you do, but you're really wealthy. And I just started calling them capital men. They're just capital guys where they just, like.

[Joe]

Did they like it when you called them capital men?

[Sam]

It's a good phrase.

[Tommy]

I think.

[Sam]

You're a capital guy.

[Tommy]

Maybe. I don't know. I guess I'm. For me, I feel like I've spent my entire life studying the history of sort of like, modern investing. Like guys that bought banks out of bankruptcy before you. You know, before, you know, when you could do that. You know, guys that have minted enormous fortunes with. You know, like, there's. There's a guy that bought a tobacco company around the time they were doing the settlements with the tobacco companies who made a fort. So I've studied a lot of these things, and I've always wanted to be. To do just one deal like that. So I guess I've always aspired to do that. But I mean, if you. There's that phrase, you know, what is it? A position well bought is already Half sold. And I do think when you're doing sort of very special situation, sort of deep value distress stuff, if you're selective. The problem with a fund and the big institutional money management firms is they always have to constantly be finding deals. The nice thing about being a little bit of a home gamer is you can kind of select, you can be very selective. You can literally do nothing in a six month period or a year if you just can't find anything. And you know, they still do claim work and bring in income, but you don't necessarily have to swing. I mean, we've seen deal. Over my lifetime, I've seen deals where guys have, you know, turn, you know, 20, 20 million into 3 billion and you know, 6 million into 80 million in one year. I mean, you see some incredible deals in the space and you know, you're getting high optionality, low risk because of the price you're paying. But it's a ton of work and a lot of brain damage for sure, and a lot of hustle. And that's not necessarily the claims.

[Joe]

All right, let's take a quick break because I gotta tell you a story. Let me tell you about the first time I tried to run payroll for my team. I was using a traditional bank. And you know the type. It's got a janky interface, it's built like a 2002 tax form, and it was open only during business hours. And I hit send and it froze. They flagged the transaction, they locked my account, they put me on hold for 45 minutes, and then they told me I got to visit my local branch. And that was the day I started looking for a new banking solution. After asking a few founders what they were using, I found out about Mercury. And so now my payroll is two clicks. I can wire money, I can pay invoices, I can reimburse the team all from one clean dashboard. That's why I use it for all of my companies. And so do 200,000 other startup founders. And so if you're looking to level up your banking, head to mercury.com and apply in minutes. Mercury is a financial technology company, not a bank. Banking services are provided through Choice Financial Group, column A and Evolve bank and Trust members. Fdic. We've kind of hyped up, you know what you do? Glamorized it a little bit in this episode. We've glamorized you and what you do give us a little bit of the ugly. So first on the asset class in general. So, for example, startup investing, I could tell you, is amazing. You meet these entrepreneurs, they're telling you about the future. These are the smartest of the smart, young, ambitious, creative people. And when it works, dude, you create the next Facebook, next Airbnb, you can get 10,000x. And then you go and start doing it and you're like, oh, and also, you know you're gonna be wrong most of the time. You think you're gonna learn so much from these people. It's like you hand them the check and then you kind of don't hear from them that much after that. You're not actually gonna learn that much, nor do you have any control or say and at all what's going on in your investment. And by the way, even when it works, it's going to take 10 years for it to get liquid. You might be rich otherwise. You know, this is not the way you're going to get rich. It's the way it's a hobby for people who are already rich. And that's like, if I was going to say, what's the real talk of angel investing? That's how I would describe it. What would you say is like the ugly side or the bad side of what you do? What's the downsides of this asset class?

[Tommy]

Well, distressed in general, as a small player, you can get totally hosed. So don't. Like, every now and then I'll hear someone, even smart friends will say, oh, well, you know, KKR is going to make sure everyone's taken care of because they don't want the bad press. I'm like, what are you talking about? It's not like Wobegon. They are going to walk all over you in bankruptcy court. So I never understand this logic. And it's only from many years of being like, oh, they're going to play nice. No, they're not going to play nice. And don't ever assume that. And sometimes you do get a gift. They'll do, you know, things that'll. That'll be a little more gift, like to wherever you are, if you're in a preferred or if you're an equity, God forbid you're an equity, but if you're even in claimant and things like that. So that's one of the ugly sides. I think also one of the ugly sides is, you know, it's very transactional and financial. So doesn't exactly. You don't get people who are like, giving you the starry eyes of the future. A lot of times you're sitting across people arguing over a pie that ain't growing in Fact, maybe the pie is bad, apple pie that's already gone off. So it's like they're really arguing over, over, you know, something that could be either dying or shrinking. So I think it has an emotional toll on you being in distressed investing. Also, you are actually hearing people's life stories. Like, you know, I will not mention names, but you know, companies will go bankrupt and this will be someone's entire life's work and they're, they're Picasso and they're spending two hours telling you about their Picasso and you just can't, you just gotta let him. You're almost like a guidance counselor walking them through, you know, maybe doing a deal or transaction and try and be as respectful as possible. The fact that this person might have just lost their life's work or their family's fourth generation business, et cetera, et cetera. So you, you have people in real, they emotionally are in distress. So it is a tax on you. But also you need to be as respectful as possible. And another thing, let's think, what else? I mean, I think as a small player, it's very hard. I think for me, I always say that investing isn't, I wouldn't say I'm good, I'd say I'm okay investor. I'd also say that it's a bit of a disease, so I kind of feel compelled to do it, even though sometimes maybe it's not the best thing for me. So I always joke that it's kind of a disease. I'm looking at this stuff on nights and weekends, on Sunday morning, you know, you know, just like you might be, look, having another call with a startup that you think is interesting or trying to get on an allocation for something. Like, I'm doing the same thing with my deals. Like, I'm trying to learn a little bit more and see if I can find something.

[Joe]

So.

[Tommy]

Yeah, I don't know if I answered your question.

[Joe]

No, you, you did. The second part of the question is we've been glamorizing you a little bit, but you called me, you know, before the pod and, or you called Ben and you were like, hey, like just to know, you know, like if you Google me, you're going to see some stuff. I want to be able to, you know, do you guys want to ask me any questions? Do you want me to talk about that on air? Like, do you want me to clear the air about this? So like, hey, here's an opportunity because if somebody googles you. Yeah. There's like a settlement case. I don't know what's going on with this. Like, what do you want to say about this?

[Tommy]

Yeah, so. And I, that's why I said, I said, ben, you haven't said anything about this, and I'm wondering why you haven't. And I just want to put it out there, which is, yeah, I was involved in this receivership in Delaware, and I got some pretty nasty headlines. And I have to say, you know, as I've gone through my life, I've had a lot of ups and downs like any. Anybody or any entrepreneur for sure. And this was a down one, and I'm, I'm glad to have it behind me, but basically it was a receivership that I was in charge of. I, you know, we hope we made a lot of money for the shareholders. So the, the court didn't like some of the way I went about, you know, my activities and sort of aggressively slap me on the wrist or maybe in the face. And I'm glad that everyone in it's called fun.com is getting a good recovery, and I'm glad to have it behind me. But, yeah, it's like one. Something I wanted to pull bring up because I didn't want to act like it was something didn't happen.

[Joe]

Okay, but what'd you do? You're like, ah, is not my best. What'd you do?

[Tommy]

So the biggest thing is, so I was running this receivership, and of course, because of that, I was in charge of doing everything, whether it's like administrative work or like running the bank accounts and doing the taxes. And, you know, while.

[Joe]

I'm sorry, dumb question. What is doing the receivership mean you're taking it through bankruptcy? Is that what that is?

[Tommy]

So you're. It's kind of like a bankruptcy, but it's a state in state court. So this was in Delaware Chancery Court, because the company was a Delaware court. And so my job was to sort of marshal all the assets. There were no assets when I showed up. So. So this was a. Basically a pump and dump penny stock. I bought up 20% of the company and then I went to Delaware because the guy who was running it actually got arrested for a different fraud that he was doing, this guy named Jason Galanis. And so because of that, I was like, oh. Because I knew all along that this company likely owned the domain name fun.com plus they own this ownership of an ETF company called AdvisorShares. So I went and got myself appointed receiver. There was no assets in the company, and my, My goal or my what I Was my remit from the court was as a receiver, almost like a bankruptcy trustee was to marshal all the assets and then try to pay out as much to. To shareholders as possible. I think I did. Did that. The court. We. And I did do it, but we had a. I had a shareholder who was very unhappy with the way I was going about it. He complained to the court. The court looked into my activities. They didn't take kindly to some, you know, some of the things I did, whether it's the tax position or where. How. When it. How I was moving money around and the fact that I was investing the money in deals that I was doing. And so, you know, they pretty aggressively slapped me. And that's where the headlines come from. I, of course, have the whole time feel like I did my best to cooperate with the whole thing. And I'm glad to see that we have a good settlement with the. With the new receiver of the receivership. And again, the outcome for all the shareholders who were involved is pretty darn good, which I'm glad about, because at the end of the day, I didn't want it all just go to lawyers fighting over this. And, you know, that's. That's kind of what happened. So. Not my brightest moment, I would say, because I feel responsible as a person in charge to do everything and do it properly. And I don't think I'll be being a part of anything anytime soon. Don't think I'll be doing that again.

[Joe]

Okay, well, you know, sorry to make it awkward. I just had to ask. Try to understand what.

[Tommy]

No, no, I'm glad you do. I just. And I've. You know, my thing is, for me, reputationally, as someone who does what I do, it's important that. That I try my best. But I think in the end, over time, I'll be able to talk about it more and more.

[Joe]

Sam, you look highly amused by this question and answer. What are you thinking?

[Sam]

The headlines aren't good. Yeah, I saw the headlines. I understand why you'd want it addressed. It's not. It's not a good headline. Yeah, I'm reading it as you. You spoke. So did you admit guilt? Is that what is that?

[Tommy]

No.

[Sam]

What's implied with the settlement?

[Tommy]

So the settlement is just. Well, the full. The settlement, in addition to the fine from the court, the court fined me $2 million. So I paid 2 million of what they considered were constructive trust profits in. Plus I paid for the special master. That was another 750 or 800. So it's basically 3 million then the settlement was 3.6 million, plus 800,000 that was in escrow, plus about $10 million in claims. So I gave them claims that they say were commingled within my personal investments. Do you.

[Sam]

Did.

[Tommy]

Do you think there was no duration of liability? Yeah.

[Sam]

So I don't know how to even ask this question. I can't ask this. There's no admission of liability.

[Tommy]

Well, you can ask, because you should. My only thing is, I don't. I never. I'm glad that it's a good outcome for shareholders, and I wouldn't want anyone be inflamed by the stuff I say. Like, any shareholder be like, oh, he's not, like, admitting. You know, in my estimation, it's a lot more gray than the court tries to make it out to be. But at the same time, like, I respect the court. You know, like, I was grazed by lawyers. If a court says that, you know, I don't care what you're arguing, I disagree with you.

[Joe]

We've had a bunch of people who've come on this podcast before that I think have had stuff. I mean, I think it's fairly common in the world of business. You do business for 30, 40 years that at some point something can. You know, it's extremely common for something to go down where you get sued or you sue somebody or whatever happens. That part's not uncommon. What is interesting, like, Sam, I don't know if you remember when we had Martin Shkreli on, and he's sort of got this character which is, like, he's the bad guy, and he, like, leaned into it and, like, inflamed it and, like, did a bunch of stuff which was, like, really crazy.

[Sam]

And he got trouble for it, and he got trouble.

[Joe]

And then he had the issue where you got in trouble, and he was like, hey, everybody made money. And then they're like, yeah, but, like, you went to jail, so, like, you know, something happened. And I remember you were telling him, you were like. And this was. This is now, like, years later. He had, like, literally, like, done his time. And again. He's quite a character. Like, Shkreli is like, an actual. He's an actual character. I think he plays a bit. I think he plays up that character, and I think he likes it. He likes mixing it up in that way. But I remember just thinking, like, it's so interesting how to handle something like this. It's such a. Such a tricky spot to be in, because there's many versions of things like this. Like, there's. I did something Wrong. Not knowingly or unintentionally I did something wrong intentionally. Then there's like the Shkreli case, which is kind of like I did something wrong intentionally, but. But everybody, like, made money and so who's, you know, so. So it all worked out. Right? And even, for example, like, Elon right now, I think is getting sued in like, you know, you know, 15 different courts by 50 different people, like publicly feuding with the president and Sam Altman and others. Right. Like, it's like there's a lot of people just like constantly mixing it up. And I don't know, it's just. It's very interesting to see how that side of, that side of entrepreneurship, that side of business, that side of investing.

[Tommy]

I definitely think it has to have, you know, maybe not as aggressive as mine was, but I definitely. People think over time you're going to have scrapes with, with certain stuff and the whole bad guy thing. And I know Scarelli did kind of lean into that. I guess even now I feel like it. Well, I don't know if it does now, but kinda. I don't know, it's a. It's a different way to do it. I, for me, I. I kind of like, don't view it as a good thing. For me, I kind of view it as like something that if someone's going to be a business partner to me, I need to be able to explain and, and you know, frankly, probably more candid than on air, but at the same time, like, try to respect the outcome of the whole thing.

[Sam]

How long did this last?

[Tommy]

Gosh, 2022.

[Sam]

Oh, wow.

[Tommy]

Three years till today.

[Sam]

That has to feel horrible. I've gotten in trouble before when I was in college and just like, waiting to hear the verdict. I remember like, that feeling and mine was not. I think your consequences are significantly worse than my consequences. And I can't imagine three years of what's gonna happen.

[Tommy]

Joe, for me, I tried to resign my fact, resign myself to whatever happened. Like, I have to accept responsibility for that. That was a big one for me. So I like, really was, you know, bracing for the worst, but trying to do the best also, like, even. Even with the settlement, but like, way before the settlement with different things that went on in the case. I was really trying my best to be constructive and cooperative with what the court wanted me to do. But at the same time, like, you know, not everybody's going to love your decision making. I guess it's like, you know, in a weird way, it's like, you know, it's it's, you know, I grew up in the south where people are way too, like. I don't know, maybe. Maybe sometimes, you know, maybe my upbringing was a bit too, like, people, please. But this was more like, you have to do the right thing whether someone likes it or not, and you have to do what you think is the right thing. So that's what I really. A lot of what I got out of this, and I try my best and people might not like what you've done, but. Or you know what, you've made a decision like, oh, you're doing this, you're trying to hide this, or you're trying to do this and you're not cooperating here, but you're still trying to. You're still trying to find some middle ground. So. But it was a big one. It's a big, big one over me.

[Joe]

I wanted to ask you. We can end with this. I want to ask you for a bit of a reading list. If I was going to try to get, you know, smarter about this stuff. What are like, I don't know, the most influential books or blogs or people that are worth checking out. Like, give me your kind of top three in no particular order, but what's your short list on stuff I would go read just if I wanted to get smarter about this stuff.

[Tommy]

So I think on the list, because I shared like a book list, of course you have people like Seth Klarman and Margin of Safety. It's a hard book to find, but if you Google around, you might be able to find a copy that you can.

[Joe]

Isn't it like a $2,000 book now?

[Tommy]

Yeah, it's like a thousand plus. It's good. He talks about different stuff. I just think that he's kind of a goat in the kind of deep you, you know, Bow Post and Seth Klarman are pretty influential, but, you know, easy guy to find, you know, anything by Marty. Not Marty Litman, but now I'm trying to think of his name from 3rd Avenue value. He's written a few books on distressed investing and he was the one that kind of stole the idea from him where it's like an asset is a liability, and a liability can become an asset in a bankruptcy. And it's so true. Can you think about it with a lease? If you have 50 leases and they're all below market? Well, the debtor. A debtor can assign a sum or reject leases. So if you're all below market rents, you can just, you can, you can assign them and they can become an Asset, even though leading up to the bankruptcy, you know, they can be a huge liability to make those payments.

[Sam]

You like Kirkorian? Sean, have you ever read about Kirk Kakorian?

[Joe]

You've told me about him, but I haven't read anything about him.

[Sam]

Oh, my gosh. That's one of the best biographies of all time, Kirk.

[Tommy]

Oh, you like that one? That's a. Oh, my God, yes.

[Sam]

The gambler. That's one of the best. Basically, he's our Armenian, I think. I think Armenian immigrant, yes. Raised in Central Valley, California. Went to the army. When he got back, his first little business was a small airline, which basically just means he somehow convinced someone to lease him a small Cessna and would fly people back and forth from, like, I don't even know, all around California. Like, it sounds more glamorous than it was. But he grew that over something like 15 years and sold the business to TWA, which was the large airline company at the time. And he made a little bit of money, but he parlayed that into buying the. What would now become the Las Vegas Strip. And then he parlayed that into buying this other thing. This other thing. This other thing. And he worked his way all the way up from being a nobody, poor, no running water, immigrant, to owning. What was the car? Chrysler. And I think he also owned, like, Warner. Did he own Warner? But he for sure owned Chrysler.

[Tommy]

Mgm, I believe.

[Sam]

Sorry, mgm. And the biography is basically his thinking. He's very calm. He's very methodic. He's very like, kind of traditional immigrant. Like, where he was, like, straightforward. It is what it is. I don't stress about it. But he was a total kind of degenerate gambler. And he died with a net worth of something like 15 or 10 billion dollars.

[Tommy]

Sounds about right. Well, you know what I actually love, because you were asking about Bookshawn, it's like, I actually think the entrepreneur, like, biographies, either autobiographies or biographies can be amazing. There's one called Zeckendorf, which is by a guy who's, like, a big real estate guy in New York who, like, made a billion, lost a billion. There's like, one. It's like how to lose $100 million and other valuable advice by Arthur Little. Like, there's all these kind of, like, entrepreneur books that are, like. Some are out of print, some are still out there. And of course, there's like, you know, special Sid Investing, Joel Greenblatt. You can be a stock market genius. These are. These are great books for when talking about securities markets. But I Actually think the best investors are people you've like never heard of because, you know, they make 100 million bucks and then they're like, I'm out. Peace. Like, you know, you, you might. And their stories aren't recorded. I think I put E.P. taylor in there. So you want to hear the up Taylor story real quick? That was a really great one. So E.P. taylor, during the prohibition, he would go up and buy up breweries. And his whole thesis was like, one day this is going to be done. Like we're not going to. We're all going to start drinking again. So you would go around and buy up like, you know, manufacturing, distribution, bottling. That was a play on that. And he would roll them up because the capacity was so low he could buy them for peanuts. And that was it. It was this one trade. Like, you know, of course it took him 20 years to work the trade out, but, you know, he may minted himself, you know, some serious dough. And then he wrote a book about it. So I think these, these guys, you know, you can.

[Joe]

The biography of Edward Plunkett Taylor. Is that him?

[Tommy]

Yeah, that's him. Edward Plunkett. And he founded the Life for Key Club. I don't know if you guys have ever been down there, but it's like a famous club in the Bahamas, like Primlaza. And while Sam Bankman Fried was across the thing at a place called Albany, down and down in the Bahamas. But did you ever.

[Joe]

Do you ever bump into Sandbank with Freed? Any, any good SPF stories?

[Tommy]

You know what's funny is like, so I was in crypto and then Sam became like this, like Rockefeller of crypto, like John D. Rockefeller crypto. And I was like, who the hell is this guy? Like, I never even really, I never really ran across him in passing. And a lot of people that worked for him were the, you know, whatever. EA or ei. Effective altruism. Yeah, EA people. So you had a lot of EA people around him. I just didn't know any of those folks. They weren't like hardcore crypto people.

[Joe]

Yeah.

[Tommy]

So it's kind of a weird thing. When I saw him coming up, I was like, man, how did I miss this? Where'd this guy come from?

[Sam]

We had Robert Green from 48 Laws of Power on the pod like two weeks ago or something like that. And yeah, he kind of. We, we, we. Have you ever read 48 Laws of Power? It's like the book is what it sounds like.

[Tommy]

I own the book. I think I breezed through it. I read all of it.

[Sam]

48 laws on acquiring power, whatever. It's very sociopathic, but that's like kind of the point, which is like, it's the sociopathic, but it's real. And one of the laws is like to reinvent yourself. And, and also we, so, and we had talked to him like, we were like, when you have social media, you can like talk to your people, talk to your audience, like while you're on the toilet, like any, any hour, you can tweet anything. How do you deal with that? And he was like, basically like, you want to have, you want to have planned silence so you like, you know, the best way to be loud and in everyone's face sometimes is to just shut up and not say a word. Disappear for a while and disappear for a while. And he was talking all about like powerful people who kind of come out of nowhere. John Rockefeller is one of these guys who. He was one of the richest men in the world before everyone. Like no one had seen a photo of him. And it was all part of a plan, I think. And it sounds like Sam Bankman fried. We didn't give him enough credit because when, at least when I saw him coming up, I was like, oh, he's just an autist. And he's just this typical Silicon Valley type of like, he just doesn't know. He doesn't have any manners. This is all. But it turns out it was probably all planned where he was like, I want to appear as though I slept on this beanbag. I want to appear as though I'm playing video games while I'm talking to sequoia over a 200 million dollar deal. And it was straight out of Robert Greene's 48 laws of power, which is pretty funny.

[Tommy]

I mean, I met a ton of people that work there, of course, and a ton of people that were like in the orbit. And it's kind of crazy to see the different. I guess like Munger does it best, right? The Lollapalooza effect of like the whole thing. Like everybody's getting drunk off the money.

[Sam]

Were they straight like coming in?

[Tommy]

Yeah, like almost all the people, all these employees, they didn't know anything that goes on. They weren't.

[Sam]

They're just normal nerds. They're just normal workers. Just normal. They weren't part. Well, I think they.

[Tommy]

No, I mean, like I met the lady, she was the head of payments and she was like an expert at getting like payment licenses. So basically like banking licenses around the world. And she had worked for somewhere and then she got Then CZ pulled her over to, to the Binance and then he, she got poached by Sam. She was just the best. Of course he had to pay her like she was the best. She was making millions of dollars a year. But like some of their contracts were insane. I mean Sam was giving out 10 year contracts to people guaranteed 10 year pay contracts, you know, like million dollar contracts to like salary employees a little bit like the, you know, like AI, you know, meta thing. I mean it's a little bit like that because he had so much money coming in from VCs. And of course he had an unlimited, you know, well, not unlimited, but he had a big customer base to, to, to dip into. So between that, I mean he was making unbelievable like whatever you want to call it, unconscionable contracts too.

[Joe]

Dude. Just to put this in perspective, I think Zuck, I think the news about this stuff kind of came out, you know, let's just call it even three, four months ago. Okay, so let's just say this been going on for three, four months. The, the researcher stuff. If you go look. So four months ago the stock was at about 500. Let's even, let's go April 1st, so 586. Today the stock's at 784. So he's spending this money or he's making these offers, which has multiple effects. Right. First it raises the price for all of his competitors. So he's like, cool, Even if they don't take my offer now they have to pay 100x what they were paying for talent before. Like way to screw up their business. In his own business. The stock since then, it's now at 784. So it's up 33%. So what's 33% of. It's almost a $2 trillion stock.

[Sam]

$600 billion or $600 billion.

[Joe]

And he's basically offered the equivalent of $20 billion for these, for this talent, right? Maybe maybe 40 billion max. And so he's basically said, cool, I'll put out offers and try to spend 20, 30, $40 billion. Already made back 600 billion in the market just in that time with. By strengthening my story of us being all in on AI, Right. Like it's not like the Facebook business changed that much in four months where it's up $600 billion because of the actual, you know, like user base growing or even, even revenue or earnings. Yeah, they beat, they beat by like, you know, a small, like maybe 8% beat or something like that. But the reason it's up is because everybody believes AI is the future. And who do you think is going to win in AI? And you get punished if people think you're not going to win. Apple stock is like, going down right now because people are like, Apple has no AI strategy. They're going to lose. And then somebody like, you know, meta, at least the story is Zuck is all in going to win. Poaching, great talent. We'll see. You know, so there's a believability to it, so that it's crazy that you can spend so much and somehow net out way ahead like he did.

[Sam]

It's crazy. That's crazy. That is magic of the market. Hey, Tommy, we appreciate you doing this, brother.

[Tommy]

Oh, guys, thanks for. Thanks for having me on. It's good to meet you guys in chat.

[Sam]

All right, that's it. And we appreciate you. That's the pod.

[Tommy]

I feel like I could rule the world.

[Joe]

I know I could be what I want to.

[Tommy]

I put my all in it.

[Joe]

Like, no days off on the road.

[Tommy]

Let's travel. Never looking back.

[Joe]

All right, let's take a quick break, because as you know, we are on the HubSpot podcast network, but we're not the only ones. There's other podcasts on this network, too, and maybe you like them. Maybe you should check them out. One of them that I want to draw your attention to is called Nudge by Phil Agnew. And whether you're a marketer or a salesperson and you're looking for the small changes you can make, the new habits you could do, the small decisions you could make, that will make a big difference, that's what that podcast is all about. Check it out. It's called Nudge, and you can get it wherever you get your podcasts.