- BlockFi is arguing that FTX is at fault for its collapse.
- BlockFi continues to receive heat for doing business with FTX.
- FTX is accused of investing in BlockFi as a gamble by the bankrupt crypto lender in an argument about paying back the collapsed crypto giant.
To avoid paying back its debts, BlockFi argues that its creditors are the victims of FTX’s fraud and collapse.
The now bankrupt crypto lending firm is trying to block any attempts by bankrupt companies, Three Arrows Capital and FTX, to retrieve hundreds of millions of dollars they had with BlockFi to pay their debts.
In an August 21 filing, BlockFi argued to a New Jersey bankruptcy court that their creditors should not be pushed to the edge because FTX mismanaged the $5 billion it was borrowed by BlockFi.
FTX is attempting to recover over $5 billion worth of claims filed against BlockFi’s estates at the direct expense of the ultimate victims of FTX’s fraud, which are BlockFi’s clients and other legitimate creditors.
To prevent further injustice to the creditors of BlockFi’s estates who have already been affected by FTX, BlockFi asked the court to disallow claims made by FTX under the doctrine of unclean hands.
FTX gave BlockFi $400 million in June 2022 after purchasing BlockFi’s equity according to a loan agreement. BlockFi is, however, arguing that the money from FTX was not a standard loan agreement, stating that it was an unsecured 5-year term well below market interest rates and shouldn’t be subjected to repayment so quickly as it wasn’t due until the firm was supposedly mature.
BlockFi added that FTX invested in it as a gamble, and its creditors do not owe the bankrupt firm liability for that as it was FTX’s fraudulent behaviors that caused the firm to collapse, so BlockFi’s creditors should not be expected to refund the purchase price.
Recent reports are showing that BlockFi owes up to $10 billion in debt to 100,000 plus creditors, including a $1 billion debt to their largest creditors and another $220 million to now bankrupt crypto hedge fund, Three Arrows Capital.
BlockFi accused Three Arrows Capital of making fraudulent moves with the borrowed money, hence debarring it from entitlements to a potential repayment. The lending firm is claiming that its litigation with FTX, Three Arrows Capital, and other firms could amount to $1 billion and would eventually impact the debt toward its creditors.
BlockFi has also received heat from its creditors, who have accused the bankrupt lending firm of ignoring the red flags surrounding FTX before choosing to transact with them and their trading firm, Alameda Research, in the months before the crypto giant’s collapse in November 2022.
Conclusion
However, BlockFi was able to reach a settlement with their creditors last month, opting for a repayment plan. BlockFi collapsed just two weeks after FTX filed for bankruptcy in November 2022.
