- August 25, 2023
- Posted by: [email protected]
- Category:
Cryptocurrency lending platform BlockFi is contesting attempts by FTX and Three Arrows Capital (3AC) to retrieve substantial funds to reimburse their creditors. BlockFi filed a document with a New Jersey bankruptcy court on August 21, asserting that its creditors should not be relegated to secondary status because of FTX’s claims, alleging that FTX mishandled the $5 billion it borrowed from BlockFi.
BlockFi argued that FTX is attempting to recover over $5 billion in claims against BlockFi at the expense of “the ultimate victims of FTX’s fraud,” which includes BlockFi’s clients and legitimate creditors. BlockFi further requested that the court disallow FTX’s claims under the “unclean hands” doctrine to prevent further injustice to BlockFi’s creditors.
In the filing, BlockFi disclosed that FTX had also provided $400 million to BlockFi in June 2022 as part of an unsecured, 5-year term agreement with below-market interest rates. BlockFi contended that this was more of a gamble than a typical loan agreement, with repayments deferred until BlockFi matured. BlockFi emphasized that its creditors should not bear the responsibility for refunding FTX’s investment, even though FTX’s actions contributed to the investment’s failure.
BlockFi is facing obligations of up to $10 billion to over 100,000 creditors, including $1 billion to its three largest creditors and $220 million to the bankrupt crypto hedge fund 3AC. BlockFi argued that 3AC had committed fraud in its borrowing activities and should not be entitled to potential repayments.
Additionally, BlockFi claimed that its ongoing legal battles with FTX, 3AC, and other entities could cost the firm up to $1 billion, which would significantly affect the amount owed to its creditors.
Notably, BlockFi creditors had previously accused the platform of disregarding red flags before engaging in transactions with FTX and its trading firm, Alameda Research, in the months leading up to FTX’s collapse in November 2022. However, last month, creditors reached a settlement with BlockFi to proceed with a repayment plan.
Both BlockFi and FTX filed for Chapter 11 bankruptcy, with BlockFi doing so on November 28, 2022, approximately two weeks after FTX initiated bankruptcy proceedings.
