Spinning Profits From Slow Justice

A bet on an airline that went bust four decades ago heads toward a 100 million payoff

- Luca Casiraghi and Irene García Pérez

In 2008, Jacopo Di Stefano opened a small investment company aiming to buy loans taken out by bankrupt Italian businesses. The wheels of Italian justice can move excruciatingly slowly, so he figured he could make some money by giving frustrated creditors a tiny fraction of the face value of loans that they'd long given up on and cashing in if they're ever paid off. Working alone, he spent hours studying cases, looking for anywhere it appeared the debtors could be forced to repay.

Among the faded corporate stars he uncovered, one company stood out: Aerolinee Itavia SpA. The airline had operated on and off from the late 1950s to 1980, offering short-hop domestic flights in competition with Italy's flag carrier, Alitalia SpA. On June 27, 1980, Itavia Flight 870 from Bologna to the Sicilian capital, Palermo, plunged into the Tyrrhenian Sea about 50 miles shy of its destination. All 81 people on board were killed.

The Italian government that December withdrew Itavia's license on safety grounds, effectively shutting it down. Itavia sued the government, arguing that it wasn't at fault in the crash, raising the possibility that the state might be forced to compensate the airline's owners and creditors. The legal wrangling went on for decades, and in 2009 Di Stefano stumbled onto a list of Itavia's creditors. Examining the piles of documents, he sensed opportunity. Banks still reeling from the 2008 financial crisis were happy to offload Itavia debt for as little as 1.5% of face value. And because there was a chance that what was left of the airline could prevail in court, Di Stefano thought the loans might have significant value.