Nov. 30, 2022 at 1:36 pm

Crypto firm BlockFi files for bankruptcy, sues a Bankman-Fried company

November 30, 2022no commentNo tags

Cryptocurrency lender BlockFi sued a holding company for FTX founder Sam Bankman-Fried to recover Robinhood shares pledged as collateral.

BlockFi in a complaint filed Monday said Emergent Fidelity Technologies entered a pledge agreement on Nov. 9, around the time FTX began to collapse and shortly before the crypto exchange filed for bankruptcy.

Emergent guaranteed the repayment of obligations of Alameda Research, a crypto trading firm founded by Bankman-Fried, using Robinhood shares as collateral, according to court documents.

BlockFi claimed the shares pledged as collateral were never transferred.

Bankman-Fried bought a 7.6% stake in Robinhood through Emergent in May, according to a Securities and Exchange Commission filing.

Bankman-Fried is not named as a defendant in the lawsuit, which was filed in a New Jersey court.

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BlockFi files for bankruptcy

The lawsuit against Emergent came the same day BlockFi filed for bankruptcy, as the FTX scandal reverberates across the crypto industry.

BlockFi said its exposure to FTX caused a liquidity crisis and cited it as a “major cause” of its chapter 11 filing in the U.S. Bankruptcy Court for the District of New Jersey.

The troubled crypto lender had received a rescue deal from FTX earlier this year as the value of cryptocurrencies fell. FTX had agreed to provide BlockFi with a $400 million revolving credit.

FTX declared bankruptcy earlier this month after reports sister company Almeda Research relied heavily on a token issued by the crypto exchange. The company quickly unraveled after the news spooked investors and clients, and Bankman-Fried resigned as chief executive of FTX.

“FTX’s apparent ‘rescue,’ which began in the summer of 2022, stabilized BlockFi. But that was short lived,” said the bankruptcy filing by Mark Renzi of Berkeley Research Group, BlockFi’s advisor. “Over the past few weeks, exposure to FTX exacerbated rather than cured BlockFi’s ailments.”

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New Jersey-based BlockFi said it owes money to more than 100,000 creditors, with $1 billion to $10 billion in liabilities and assets, according to a court filing.

The company listed FTX as its second-largest creditor, with more than $275 million owed on a loan extended earlier this year.

BlockFi also said it owes the SEC $30 million. In February, a BlockFi subsidiary agreed to pay a $100 million settlement over registration failures.

BlockFi said it has $256.9 million in cash on hand, which it expects will support some operations during the company’s restructuring process. All activity on the platform has been paused.

“From inception, BlockFi has worked to positively shape the cryptocurrency industry and advance the sector,” Renzi said in a statement. “BlockFi looks forward to a transparent process that achieves the best outcome for all clients and other stakeholders.”

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Crypto firm BlockFi files for bankruptcy, sues a Bankman-Fried company

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