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BlockFi lawyer tells bankruptcy court that the priority is to ‘maximize client recoveries’
In this photo illustration, the BlockFi logo seen displayed on a smartphone.
Rafael Henrique | Sopa Images | Lightrocket | Getty Images
BlockFi plans to reopen withdrawals as part of an effort to “maximize client recoveries,” the crypto lender’s lawyers said at a court hearing Tuesday, a day after the firm filed for Chapter 11 bankruptcy protection.
BlockFi’s lawyers at that hearing expressed optimism that the firm is in good position to restructure and salvage the business through the bankruptcy process.
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“We want to make sure we get people back as much of their value as quick as we can,” said Josh Sussberg, a partner at BlockFi’s legal firm Kirkland & Ellis.
BlockFi’s collapse was precipitated by exposure to Three Arrows Capital — which filed for bankruptcy protection in July — and to Alameda Research, the FTX trading arm that borrowed hundreds of millions of dollars from BlockFi. FTX had arranged a rescue plan for BlockFi, but that fell apart when FTX faced its own liquidity crisis earlier this month and rapidly sank into bankruptcy.
BlockFi loaned $671 million to Alameda and had an additional $355 million in digital assets that are currently frozen on the FTX platform, Sussberg said.
Exposure to both firms prompted client withdrawals, but it was FTX’s plan to acquire BlockFi that ultimately led it into bankruptcy proceedings, the lawyer said. In July, FTX swooped in to save BlockFi by extending a $400 million revolving credit facility and offering to potentially buy the beleaguered lender.
“At the time, 89% of BlockFi shareholders voted in favor of the transaction,” Sussberg said.
In the bankruptcy filing, BlockFi indicated it had more than 100,000 creditors, with liabilities and assets ranging from $1 billion to $10 billion. The company also listed an outstanding $275 million loan to FTX US, the American arm of Sam Bankman-Fried’s former empire, and BlockFi owes the SEC $30 million stemming from a prior settlement.
BlockFi boasted strong regulatory oversight, corporate controls and risk management, the lawyer said. He was making a clear contrast to FTX, which was excoriated by new CEO John Ray III as having a “complete failure of corporate controls.”
Compounding BlockFi’s challenge is hundreds of millions of dollars in collateral that FTX and Bankman-Fried pledged to the company as part of the rescue package. The Financial Times, citing loan documents, reported on Monday that the collateral is composed of Robinhood stock, which Bankman-Fried purchased earlier this year.
