The US-based crypto lender BlockFi has sued FTX founder Sam Bankman-Fried’s (SBF) Emergent Fidelity Technologies investment company for withholding Robinhood stocks it pledged as collateral, as reported by The Financial Times, citing the documents seen.
BlockFi filed for Chapter 11 bankruptcy protection on Monday in a New Jersey court, a move rooted in a liquidity crisis caused by the crypto lender’s exposure to the defunct crypto exchange FTX.
According to the suit, the crypto lender and Emergent Fidelity Technologies entered an agreement to payment obligation by an unnamed borrower, promising an unidentified common stock as collateral on November 9, just before the collapse of the giant crypto exchange.
However, according to the Tuesday report by Financial Times, citing loan documents, the borrower was Bankman-Fried’s Alameda Research, and the collateral in question turned out to be Robinhood.
BlockFi blamed the bankruptcy on its exposure to FTX and Alameda Research, saying it had defaulted on a $680 million collateralized loan in early November, just as SBF’s company started tumbling down.
Early this year, SBF purchased a 7.6% stake in the company, and he was considering buying the Robinhood crypto exchange just before his company collapsed.
In the days leading to FTX’s bankruptcy filing, the company founder Bankman-Fried was rushing to raise billions of dollars for new financing, which was all in vain. Spreadsheets he shared with some of his investors listed Robinhood as an asset.
The FT reported that, in early November, SBF had been privately trying to sell the Robinhood shares using the secure messaging app signal, leading to FTX’s bankruptcy filing on November 11.
According to some people close to the matter, Mr. Bankman-Fried continued negotiating his Robinhood shares even after agreeing with the crypto lender.
BlockFi Files For Bankruptcy
However, BlockFi announced on its blog that it sought bankruptcy protection following an early activity pause. It stated”
“Since the pause, our team has explored every strategic option and alternative available to us and has focused on our primary objective of doing the best we can do for our clients.”
The blog continued, “These chapter 11 cases will enable BlockFi to stabilize and allow the company to consummate a reorganization plan that maximizes value for all stakeholders, including our valued clients.”BlockFi’s financial advisor Mark Renzi of Berkeley Group Research said,
“Although the debtor’s exposure to FTX is a major shock of this bankruptcy filing, the debtors do not face the myriad issues facing FTX.”
He added that the crypto lender intends to seek authority to honor client withdrawal requests from its customer wallet accounts, saying, “BlockFi clients may ultimately recover a substantial portion of their investments.”
The firm also made a statement about its Bermuda subsidiary in a press release which stated,
“In parallel with these Chapter 11 cases, BlockFi International Ltd. A Bermuda-incorporated company filed a petition with the supreme court of Bermuda for the appointment of joint provisional liquidators according to section 161(e) of Bermuda’s Company Act.”
Additionally, the crypto firm filed for customary motions to continue its business operations, including paying wages and maintaining employee benefits, among many others, which are yet to be given the green light by the New Jersey court approval.
The most recent lawsuit by the BlockFi platform has also named ED&F Man Capital markets as Emergent’s broker, claiming it had refused to transfer the collateral to the crypto lender.
