BlockFi Files For Bankruptcy
BlockFi has filed for Chapter 11 bankruptcy following its exposure to FTX. The crypto lender owing over $1 billion in liabilities to various creditors was promised $675 million in collateral by Sam Bankman-Fried as part of a loan-deal before his companies collapsed.
Crypto bank BlockFi has filed for Chapter 11 bankruptcy, becoming the latest company to go under following exposure to collapsed crypto exchange FTX. The filing at the United States Bankruptcy Court for the District of New Jersey was done with the intention of stabilizing BlockFi’s business while providing the company with the opportunity to “consummate a comprehensive restructuring transaction” for all its clients and other stakeholders.
Chapter 11 of the bankruptcy code allows companies to reorganize and keep their business operational while paying off debts over time.
The company founded in 2017 by Zac Prince and Flori Marquez, was one of the largest crypto banking platforms that allowed customers to lend and borrow against their crypto assets. However, this summer’s crypto winter plunged the market and negatively affected BlockFi and its competitors Voyager Digital and Celsius Network. Both Voyager and Celsius suspended activity and froze customer withdrawals in June citing liquidity constraints and later filed for Chapter 11 bankruptcy protection. The same month, BlockFi laid off 20% of its workforce, reasoning market conditions, which raised concerns regarding the future of the company.
Sam Bankman-Fried, CEO of FTX, bailed out BlockFi by providing a $400 million loan with the option to purchase the company for $240 million next year. However, the spectacular collapse and bankruptcy of FTX in November dashed all hopes for the crypto lender once valued at almost $5 billion. On November 10th, BlockFi announced that it was limiting activity on the platform and pausing customer withdrawals until further notice.
“With the collapse of FTX, the BlockFi management team and board of directors immediately took action to protect clients and the company. From inception, BlockFi has worked to positively shape the cryptocurrency industry and advance the sector. BlockFi looks forward to a transparent process that achieves the best outcome for all clients and other stakeholders,” said Mark Renzi of Berkeley Research Group, the financial advisor leading BlockFi’s bankruptcy procedure.
Moving ahead with bankruptcy procedures, BlockFi has filed a series of customary motions in court to allow the company to conduct some operations. This includes paying employee wages, and forming a Key Employee Retention Plan to retain trained employees that can help the company function normally during the process. Court filings show BlockFi has $256.9 million in hand which will provide sufficient liquidity to help the company continue operations while restructuring. The documents also reveal that the crypto lender owes over $1 billion in liabilities to its 100,000 creditors. BlockFi owes $729 million to its largest creditor Ankura Trust Company, $275 million to FTX and $30 million in fines to the SEC (Securities and Exchanges Commission).
In February, BlockFi was fined $100 million by the SEC for failing to register its lending products as securities and for violating provisions of the Investment Company Act of 1940. In order to settle charges against it, BlockFi had agreed to pay $50 million in penalty to the SEC and an additional $50 million to 32 U.S states for similar allegations.
On November 14th, BlockFi confirmed that it had significant exposure to FTX after Sam Bankman-Fried’s company lent up to $400 million to the company in June. According to Berkeley Research, this is what created the liquidity crisis that led to the bankruptcy of BlockFi. Now the company has filed a lawsuit against Sam Bankman-Fried and his holding company Emergent Fidelity Technologies for their shares in Robinhood. Before filing for bankruptcy, SBF had promised his 7.6% stake worth $648 million in the online brokerage firm as collateral to BlockFi, which the company is now after.
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According to its bankruptcy filing, BlockFi has assets between $1 billion and $10 billion and liabilities of the same range that it owes to over 100,000 creditors.
BlockFi now joins a growing list of firms that have been impacted by their exposure to FTX. The future of crypto lender Voyager Digital to which SBF lent $500 million through his now bankrupt market maker firm Alameda Research, and crypto investment bank Genesis Global Capital who has $175 million worth of assets locked on FTX, are hanging by a thread.
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