Cryptocurrency lender BlockFi goes bankrupt in the aftermath of FTX

(Bloomberg) — BlockFi Inc. filed for bankruptcy, the latest crypto company to collapse following the rapid collapse of crypto exchange FTX.

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BlockFi said in a statement Monday that it will use the Chapter 11 process to “focus on recovering all obligations owed to BlockFi by its partners, including FTX and public institutions.” related companies”, adding that recovery may be delayed due to the bankruptcy of FTX itself. Chapter 11 bankruptcy allows a company to continue operating while drawing up a plan to repay its creditors.

The lawsuit, filed in New Jersey, lists BlockFi’s assets and liabilities at between $1 billion and $10 billion each. The company said in a statement that it has about $257 million in cash and is initiating an “internal plan to significantly reduce costs, including labor costs.”

Citing “lack of clarity” about the bankruptcy status of FTX and Alameda Research, the Jersey City, New Jersey-based company had previously halted withdrawals and said it was exploring “all options.” choose” with external advisors.

Following investigations of FTX by the US Securities and Exchange Commission and the Commodity Futures Trading Commission into possible misuse of client funds, BlockFi unknown the source of the credit line funding from the US FTX and collateral for loans to Alameda, including shares of Robinhood Markets Inc. , from, Bloomberg News reported earlier this month. BlockFi is also in the process of moving its assets to FTX for custody, but the majority of assets were not transferred before the collapse of FTX.

FTX US is listed on the company’s petition as one of the top unsecured creditors, with a $275 million loan.

The company’s largest unsecured creditor, Ankura Trust Company, owes about $729 million, according to the lawsuit. According to its website, Ankura acts as a fiduciary for BlockFi’s interest-bearing crypto accounts.

BlockFi was founded in 2017 by Zac Prince and Flori Marquez and in its early days received backing from influential Wall Street investors such as Mike Novogratz and later Valar Ventures, a hedge fund. Peter Thiel-backed venture capital as well as Winklevoss Capital, among others. It made waves in 2019 when it started offering profitable accounts with interest paid in Bitcoin and Ether, with its program attracting millions of dollars in instant deposits.

According to the company’s website, the company has grown during the pandemic years and has offices in New York, New Jersey, Singapore, Poland and Argentina. The Prince co-founder in a March 2021 interview with Bloomberg said BlockFi is using the proceeds of a $350 million funding round to expand into new markets and fund new ventures. new product. Bain Capital Ventures and Tiger Global were among investors in that round.

Initially valued at $3 billion in March 2021, BlockFi managed to raise capital at a valuation that fell by about $1 billion in June. The company also faced scrutiny from the agencies. financial management of its interest-bearing accounts and agreed to pay $100 million in fines to the SEC and several U.S. states in February. The SEC is listed in bankruptcy filing as BlockFi’s fourth-largest creditor, with $30 million in debt to the agency.

BlockFi worked with FTX US after it suffered $80 million in bad debt from crypto hedge fund Three Arrows Capital, which blew up following the write-off of stablecoin TerraUSD in May.

The company has significant exposure to the empire of companies founded by former FTX CEO Sam Bankman-Fried. The company received a $400 million line of credit from FTX US in a deal that also gave the company the option to acquire BlockFi through a bailout orchestrated by Bankman-Fried over the summer. BlockFi also has mortgaged loans to Alameda Research, the trading company co-founded by Bankman-Fried.

The company is the latest crypto company to seek bankruptcy amid a prolonged slump in digital asset prices. Lenders Celsius Network LLC and Voyager Digital Holdings Inc. also filed for court protection this year.

The case is BlockFi Inc., 22-19361, United States Bankruptcy Court for the District of New Jersey (Trenton).

–With support from Jeremy Hill and Vildana Hajric.

(Adds the company’s history of entanglements with FTX starting in the fifth paragraph.)

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