BlockFi Files for Bankruptcy Protection as FTX Saga Fallout Continues

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Crypto lender BlockFi has become the latest casualty of the FTX saga, as it has formally filed for Chapter 11 bankruptcy protection.

Focusing on Its Core Business

On Monday, BlockFi formally filed for bankruptcy protection with the United States Bankruptcy Court for the District of New Jersey. The filing, which many in the industry saw coming, will affect the entirety of BlockFi and its subsidiaries.

According to a statement from the company, BlockFi confirmed that it currently has about $257 million in assets on hand. The company confirmed its intention to keep paying employees wages and benefits without interruption and build a Key Employee Retention Plan that will help it retain key internal human resources to ensure the continuity of core business functions.

The statement added that BlockFi’s international arm has also proceeded with a bankruptcy filing with the Supreme Court of Bermuda.

BlockFi’s bankruptcy filing revealed that the company currently has obligations to over 100,000 creditors. Its assets are valued between $1 billion and $10 billion, while its liabilities are also in the same range. In the list of the lender’s top 50 creditors, unsecured claims ranged from $275 million to West Realm Shires Inc. to a debt of $999,650 to an unidentified creditor.

The lender also owes about $30 million to the Securities and Exchange Commission (SEC).

BlockFi reached a $100 million settlement with the financial watchdog in February after failing to register accounts that the SEC had deemed securities. However, it appears that the company has yet to complete its obligation.

The FTX Contagion Continues

The bankruptcy filing from BlockFi isn’t a surprise. The company has had a rough year, with its operations initially being threatened back in June following the implosion of crypto hedge fund Three Arrows Capital. With significant exposure to the hedge fund, BlockFi immediately went into survival mode, slashing its workforce and pausing customer withdrawals for a period.

After weeks of uncertainty, however, BlockFi received a $400 million line of credit from FTX US. The financing deal came with an option for FTX to outrightly purchase the lender for a total of $680 million, according to BlockFi chief executive Zac Prince. Considering that the company had been valued at $5 billion just last year, this drop in valuation was astonishing.

Nevertheless, BlockFi was able to continue operating after getting the funds needed from FTX US. And, with the entire FTX empire now going under within the past month, there had been renewed questions about whether BlockFi would survive. Unsurprisingly, it hasn’t.

Right now, BlockFi is hoping to restructure its business and possibly salvage its core operations. One of its first steps is to sue former FTX chief executive Sam bankman-Fried to recover some of its funds.

Yesterday, BlockFi filed a suit against Emergent Fidelity Technologies, Bankman-Fried’s holding company, seeking the former billionaire’s shares of the popular trading app Robinhood.

Bankman-Fried purchased a 7.6% stake in the online broker back in May, spending $648 million on the investment through Emergent. Based on Robinhood’s valuation at press time, Bankman-Fried’s stake in the company should be worth about $577 million.

In its filing, BlockFi is demanding that Emergent turn over the shares as collateral based on a payment schedule agreement between Emergent and the company earlier this month.

About Jimmy Aki PRO INVESTOR

Based in the UK, Jimmy is an economic researcher with outstanding hands-on and heads-on experience in Macroeconomic finance analysis, forecasting and planning. He has honed his skills having worked cross-continental as a finance analyst, which gives him inter-cultural experience. He currently has a strong passion for regulation and macroeconomic trends as it allows him peek under the global bonnet to see how the world works.