According to a recent legal filing by FTX, proposals put forward by failed crypto lender BlockFi are a misuse of bankruptcy rules, with over a billion dollars in disputed transactions at stake.
BlockFi’s intentions, which are expected to be debated in court on July 13 in New Jersey, have also been opposed by collapsed hedge firm Three Arrows Capital (3AC) and federal regulator the Securities and Exchange Commission (SEC). FTX, which bailed out the ailing lender last year before declaring bankruptcy in November, alleges that the proposed deal unfairly downgrades its considerable claims against BlockFi.
“BlockFi Debtors believe some bankruptcy wand can be waived to make the FTX Debtors’ claims disappear… without satisfying basic procedural fairness and due process requirements,” FTX argued in a proposed wind-up plan submitted in June. “This is abuse of the planning process.”
FTX cites hundreds of millions of dollars in repayments and collateral tied to a loan with FTX’s trading arm Alameda Research, as well as $1 billion in collateral pledges made by Emergent Fidelity, a firm established up by FTX CEO Sam Bankman-Fried to hold shares in Robinhood (HOOD).
The filings are an attempt to untangle complex financial transactions among crypto firms, which are currently undertaking separate bankruptcy proceedings in order to reimburse consumers and other creditors. BlockFi may also have claims against FTX in parallel actions in Delaware, to which FTX’s lawyers “expect to object,” according to the document.
Three Arrows Capital, which claims BlockFi owes it over $220 million, also complained that it wasn’t given an opportunity to defend fraud allegations, while the SEC argued proposed provisions to free BlockFi and its management were overly vague and wide.
Binance faced legal delays when the SEC raised similar concerns about crypto lender Voyager.The United States withdrew its offer to purchase the corporation. BlockFi’s creditors have also argued that the business’s bankruptcy plan is an expensive and complicated means to shield executives from legal liability for poor financial decisions, and that the company should simply be liquidated.