Miami Herald

Crypto lender BlockFi goes bankrupt in aftermath of FTX

- BY KEVIN SIMAUCHI AND HANNAH MILLER

BlockFi Inc. filed for bankruptcy, the latest crypto firm to collapse in the wake of crypto exchange FTX’s rapid downfall.

BlockFi said Monday it will use the Chapter 11 process to “focus on recovering all obligation­s owed to BlockFi by its counterpar­ties, including FTX and associated corporate entities,” adding that recoveries are likely to be delayed by FTX’s own bankruptcy. Chapter 11 bankruptcy allows a company to continue operating while working out a plan to repay creditors.

The petition, filed in New Jersey, lists BlockFi’s assets and liabilitie­s at between $1 billion and $10 billion each. The company said in the statement that it had around $257 million of cash on hand and is starting an “internal plan to considerab­ly reduce expenses,

including labor costs.”

Citing “a lack of clarity” over the status of bankrupt FTX and Alameda Research, the Jersey City, New Jersey-based company earlier halted withdrawal­s and said it was exploring “all options” with outside advisers.

Following investigat­ions into FTX by the U.S. Securities Exchange Commission and Commodity Futures Trading Commission over

potential misuse of customer funds, it became unclear to BlockFi where funding for a credit line from FTX US and collateral on loans to Alameda, which included Robinhood Markets Inc. stock, came from, Bloomberg News reported this month. BlockFi had also been in the process of shifting over its assets over to FTX for custody, but the majority of the assets had not been moved prior to

FTX’s collapse.

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

The company’s largest unsecured creditor, Ankura Trust Company, is owed about $729 million, according to the petition. Ankura acts as a trustee for BlockFi’s interest-bearing crypto accounts, according to its website.

BlockFi was founded in 2017 by Zac Prince and Flori Marquez and in its early days had backing from influentia­l Wall

Street investors such as Mike Novogratz and, later on, Valar Ventures, a Peter Thiel-backed venture fund as well as Winklevoss Capital, among others. It made waves in 2019 when it began providing interestbe­aring accounts with returns paid in Bitcoin and Ether, with its program attracting millions of dol

lars in deposits right away.

The company grew during the pandemic and had offices in New York, New Jersey, Singapore, Poland and Argentina, according to its website. In a March

2021 interview with Bloomberg, co-founder Prince said BlockFi was using proceeds from a $350 million funding round to expand into new markets and fund new products. Bain Capital Ventures and Tiger Global were among the investors in the that round.

Originally valued at $3 billion in March 2021, BlockFi looked to raise money at a reduced valuation of about $1 billion in June. The firm also faced scrutiny from financial regulators over its interestbe­aring accounts and agreed to pay $100 million in penalties to the SEC and several states in February. The SEC is listed on the bankruptcy filing as BlockFi’s fourth-largest creditor, with $30 million owed to the agency.

BlockFi worked with

FTX US after it took an $80 million hit from the bad debt of crypto hedge fund Three Arrows Capital, which imploded after the TerraUSD stablecoin wipeout in May.

The company had significan­t exposure to the empire of companies founded by former FTX Chief Executive Officer Sam Bankman-Fried. The company received a $400 million credit line from FTX US in an agreement that also gave the company the option to acquire BlockFi through a bailout orchestrat­ed by Bankman-Fried over the summer. BlockFi also had collateral­ized loans to Alameda Research, the trading firm co-founded by Bankman-Fried.

Crypto lenders Celsius Network and Voyager Digital Holdings also filed for bankruptcy protection this year.

 ?? Dreamstime/TNS ?? BlockFi had significan­t exposure to the companies founded by former FTX CEO Sam Bankman-Fried.
Dreamstime/TNS BlockFi had significan­t exposure to the companies founded by former FTX CEO Sam Bankman-Fried.

Newspapers in English

Newspapers from United States