Customers of failed crypto lender BlockFi may soon be able to recoup a portion of their frozen crypto assets after a bankruptcy court judge reportedly greenlit the firm’s liquidation plan. BlockFi stopped allowing its customers to make withdrawals in November 2022, citing a lack of clarity from FTX, one of the lending platform’s biggest borrowers. […]
The post Judge Directs Bankrupt Crypto Lender BlockFi To Kick Off Partial Repayment to Customers: Report appeared first on The Daily Hodl.
The approval is seen as a milestone moment for BlockFi's over 100,000 creditors, who have been long awaiting repayment.
The customers of bankrupt cryptocurrency lending platform BlockFi are one step closer to being paid out after a United States Bankruptcy Court in New Jersey approved its liquidation plan.
Bankruptcy Judge Michael A. Kaplan approved BlockFi's third amended Chapter 11 plan in a Sept. 26 court hearing, a filing on the same day shows.
The amount of repayment received by BlockFi's unsecured creditors will largely depend on whether BlockFi succeeds in its legal battle against FTX and other bankrupt cryptocurrency firms.
BlockFi's liquidation plan was approved after the firm settled a long-fought dispute with the creditors committee over the company’s senior management.
The now bankrupt lending platform blamed FTX's collapse for its own failure despite the creditor's committee citing concerns with BlockFi's relationship with FTX and its former CEO Sam Bankman-Fried.
Related: BlockFi asks court for permission to convert trade-only assets into stablecoins
Estimates show BlockFi owes up to $10 billion to over 100,000 creditors, including $1 billion to its three largest creditors and $220 million to bankrupt crypto hedge fund Three Arrows Capital.
This is a developing story, and further information will be added as it becomes available.
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BlockFi argues its creditors, not FTX’s, are the “ultimate victims” of FTX’s alleged fraud.
Bankrupt cryptocurrency lender BlockFi is trying to block attempts by the similarly bankrupt FTX and Three Arrows Capital (3AC) that aim to retrieve hundreds of millions of dollars to pay back their creditors.
BlockFi claimed in an Aug. 21 filing to a New Jersey bankruptcy court that its own creditors shouldn’t be pushed to the back of the line because FTX’s creditors were harmed by the exchange allegedly misappropriating $5 billion BlockFi lent it.
“FTX seeks to recover on over $5 billion of claims filed against the BlockFi estates at the direct expense of the ultimate victims of FTX’s fraud: BlockFi’s clients and other legitimate creditors.”
“To prevent further injustice to the creditors of BlockFi’s estates, the Court should disallow the FTX Claims under the doctrine of unclean hands,” BlockFi added.
FTX also provided $400 million to BlockFi in June 2022 in addition to buying BlockFi equity pursuant to a loan agreement, the filing stated.
However, BlockFi claimed it wasn’t a standard loan agreement — it was an unsecured, 5-year term that was well below market interest rates and repayments weren’t due until the firm would supposedly mature.
BlockFi referred to FTX’s investment as a “gamble” that BlockFi creditors shouldn’t be liable for.
“Just because FTX’s fraudulent actions caused FTX’s bet to fail does not mean BlockFi’s creditors are now somehow liable to refund the purchase price,” it argued.
Estimates show BlockFi owes up to $10 billion to over 100,000 creditors including $1 billion to its three largest creditors and $220 million to bankrupt crypto hedge fund 3AC.
BlockFi claimed 3AC committed fraud with the money it borrowed and argued it also shouldn’t be entitled to a potential repayment.
BlockFi claims its litigation with FTX, 3AC and other firms could cost it up to $1 billion — impacting the amount its creditors are owed.
Related: BlockFi opens crypto withdrawals for eligible US users following court order
Several BlockFi creditors previously accused the firm of overlooking several red flags before transacting with FTX and its trading firm Alameda Research in the months prior to FTX’s collapse in November 2022.
Despite this, creditors settled with BlockFi last month to move forward with a repayment plan.
BlockFi filed for Chapter 11 bankruptcy on Nov. 28, about two weeks after FTX similarly filed for bankruptcy.
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The lending platform halted client withdrawals amid filing for bankruptcy in November 2022, but later petitioned the court for authorization to return user funds.
Many customers at defunct crypto lending firm BlockFi have reported being able to withdraw funds for the first time in months following an order from a United States bankruptcy court.
In an Aug. 17 update on X, BlockFi said it had opened withdrawals for wallets of eligible users in the U.S. in accordance with a bankruptcy court order. The lending firm said the withdrawals did not extend to many wallets controlled by international users, but legal proceedings were ongoing.
“As authorized by the Court in the Wallet Order, eligible clients at this time include U.S.-based BlockFi Wallet account holders who [...] did not withdraw or transfer more than $7,575 worth of digital assets from their BlockFi Interest Account (BIA) or BlockFi Private Client (BPC) on or after November 2, 2022 [and] did not hold any trade-only assets in their Wallet at the time of Platform Pause on November 10, 2022, at 8:15 P.M. E.T.,” said BlockFi in its notice to users.
Earlier today, we opened withdrawals of digital assets from BlockFi Wallet accounts for eligible clients in accordance with the authorization provided by the Court in the Wallet Order: https://t.co/wOc3Fk0VpH
— BlockFi (@BlockFi) August 17, 2023
BlockFi was one of many firms that filed for Chapter 11 bankruptcy protection in the United States in 2022, including FTX, Celsius Network, and Voyager Digital. The lending platform halted client withdrawals in November 2022, but filed motions that December to return user funds.
Related: Crypto custodian Prime Trust files for Chapter 11 bankruptcy
A court order filed on Aug. 16 in U.S. Bankruptcy Court for the District of New Jersey gave BlockFi the legal authorization to open withdrawals for the first time in nine months. Many X users have already reported being able to access their funds, but some based outside the U.S. said they still were not eligible.
Today is a good day. Blockfi wallet funds finally released for qualified wallet holders. Feels like new funding secured for myself.
— ☘️coronalight no (@dillyflippd) August 17, 2023
BlockFi reported on Aug. 2 that the bankruptcy court had conditionally approved its restructuring plan, adding it planned to prioritize recovering funds from firms including Alameda Research, FTX, Three Arrows Capital, Emergent and Core Scientific. The lending firm also faces a $30-million fine from the U.S. Securities and Exchange Commission, which the regulator said in June it would postpone collecting until BlockFi’s users were repaid.
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Crypto lending firm BlockFi had roughly $1.2 billion in assets tied to FTX and Alameda Research when the firm filed for bankruptcy in November 2022.
Zac Prince, the CEO of bankrupt cryptocurrency lending firm BlockFi, allegedly disregarded recommendations from the company’s risk management team over lending assets to Alameda Research.
According to a July 14 filing with United States Bankruptcy Court for the District of New Jersey by the unsecured creditors' committee, BlockFi’s risk management team reported on the “high risks” associated with lending assets to Alameda. Prince allegedly dismissed concerns from the team on BlockFi lending Alameda $217 million by August 2021. The team suggested there could be risks should the FTX Tokens (FTT) used to secure the loans need to be liquidated.
“As early as August 2021, BlockFi’s risk management team was advised that Alameda’s balance sheet was largely comprised of ‘~7bb unlocked FTT, and 11bb total including locked tokens based on unaudited financials,’” said the filing. “This set off alarms at BlockFi. Mr. Prince dismissed the concerns, urging the risk team to learn to ‘get comfortable [with Alameda] being a three arrows size borrower, just with FTT and other collateral types instead of GBTC shares.’”
After January 2022, the risk management team stopped issuing memos to Prince on the potential risks of giving loans to Alameda, moving discussions to “offline meetings and Slack”, where the CEO occasionally acknowledged the exposure. BlockFi had roughly $1.2 billion in assets tied to FTX and Alameda when the firm declared bankruptcy.
— BlockFi (@BlockFi) November 11, 2022
Related: BlockFi plans to file assets and liabilities for bankruptcy case on Jan. 11
At the time of its Chapter 11 filing in November 2022, BlockFi said it had “significant exposure” to FTX and its associated entities. FTX US received a $400-million credit line from BlockFi in July 2022, furthering financial ties between the two firms amid a crypto winter.
“BlockFi recalled its loans from Alameda [in June 2022], and Alameda repaid its outstanding balance to almost zero,” said the report. “BlockFi then could have walked away from the relationship. Instead, it re-lent Alameda nearly $900 million (between July and September 2022), almost exclusively collateralized by FTT.”
The filing added:
“It may be true that Alameda/FTX’s downfall triggered BlockFi’s downfall, but BlockFi’s demise was rooted in business practices and decisions well preceding Alameda/FTX’s bankruptcy filing.”
In a statement to Cointelegraph, a BlockFi spokesperson said the firm disagreed with the report. The firm alleged in a separate court filing the committee behind the report “cherry-picks statements out of context, errs on other matters, and does not deliver the objective analysis promised.”
BlockFi directly cited exposure to FTX in the reasons for its bankruptcy filing. FTX’s practice of collateralized loans based on FTT tokens left many firms holding the bag after the price of the token dropped from more than $25 to under $2 amid the Chapter 11 filing and reported liquidity issues.
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The lending platform’s team will begin offering loans directly to some borrowers instead of relying solely on pool delegates to provide capital.
Web3 lending platform Maple Finance has announced the launch of a direct lending program, according to a June 28 fact sheet from the platform’s development team. The program is intended to replace services previously provided by Celsius, BlockFi and other now-bankrupt lenders.
The first lending pool will be available sometime in July, the company stated.
Introducing Maple Direct, the new lending arm of Maple Finance.
— Maple (@maplefinance) June 28, 2023
With the formation of Maple Direct, Web3 now has a specialist digital native lender and launches to meet the growing institutional demand for a trusted direct lending desk in Web3.https://t.co/Q4jfnABk3R
Maple Finance is a blockchain institutional capital marketplace. It is used by Web3 businesses to obtain loans, allowing them to finance product launches or expansions. In the past, Maple relied on credit professionals, called “pool delegates,” to provide capital for these loans. For example, Celsius used Maple to create a Wrapped Ether (WETH) lending pool in February 2022.
But in the bear market of mid-to-late 2022, some of the largest Web3 lenders went bankrupt. Celsius closed up shop in July, BlockFi went belly up in November, and Genesis declared bankruptcy in January.
In the June 28 announcement, the Maple team stated that it will now fulfill the role of a lender on the platform in some cases. Using its own credit underwriting expertise, it will provide capital from institutional allocators to creditworthy borrowers. This means that if a potential borrower can’t get loans from one of the other providers, the person may be able to obtain them from Maple through its Maple Direct program.
Related: Celsius seeks to convert alts to Bitcoin and Ether under reorganization plan
According to the Maple team, this new program is necessary because major Web3 lenders have “exited the space” and traditional lenders such as banks “do not have the necessary focus or expertise to underwrite to the innovative group” of Web3 technology firms.
The team said it will launch its first direct lending pool sometime in July, which will focus on lending to “infrastructure, asset management, [and] liquidity providers.” The team has invited capital allocators to earn yield through the program, saying that it suits the needs of “Crypto Funds, DAOs, VCs, HNWI, Yield Aggregators, [and] Family Offices” looking for a return on their investments.
Maple will also “continue to expand its existing services,” the announcement said, implying that Maple Direct will not replace the current platform that features competing lenders.
Lenders at Maple Finance suffered from the FTX and Alameda Research bankruptcies in November. Borrower Aurus Global missed one of its payments as a result of fallout from these events, and Maple also cut ties with borrower Orthogonal Trading over what it saw as misrepresentations. But the platform bounced back quickly, launching version 2.0 of its software in December.
The U.S. Securities and Exchange Commission (SEC) has decided to allow bankrupt crypto lender BlockFi to prioritize its creditors over its civil penalties. BlockFi owes the SEC a $30 million fine stemming from 2022 charges, but the regulator agreed to scrap the penalty until the company can pay off the parties who lost money when […]
The post U.S. SEC Agrees To Scrap $30,000,000 BlockFi Fine Until Bankrupt Crypto Lender Pays Its Creditors appeared first on The Daily Hodl.
The now-defunct crypto lender Blockfi has recently filed a court document outlining its plans to liquidate the company. The firm has come to the realization that selling the company would not be beneficial to its creditors. As a result, Blockfi has decided to take matters into its own hands and proceed with a self-liquidating transaction. […]
A New Jersey judge reportedly ruled that BlockFi owns the funds that customers transferred from interest-bearing accounts when the bankrupt crypto lender froze withdrawals last year. In November, BlockFi announced it would stop allowing customers to withdraw their funds amid uncertainties on the status of crypto exchange FTX and its trading arm Alameda Research. A […]
The post Judge Sides With Bankrupt Lender BlockFi in Dispute Over Customers’ Crypto in Interest-Bearing Accounts: Report appeared first on The Daily Hodl.
Circle and BlockFi executives were questioned after the lawmakers accused SVB of “coddling” and giving “white glove” treatment to its largest depositors.
Executives at the stablecoin issuer Circle and the bankrupt cryptocurrency lender BlockFi have been questioned by two members of Congress investigating the so-called “mutual backscratching arrangements” alleged to have taken place with the now-failed Silicon Valley Bank (SVB).
On April 9, letters from Senator Elizabeth Warren and Representative Alexandria Ocasio-Cortez (AOC) were sent to Circle, BlockFi and 12 other non-crypto tech firms asking a series of questions on each firm's relationship with SVB.
The lawmakers stated that more needs to be known about SVB’s reported “coddling” and “white glove” treatment towards its largest depositors in order to understand if these firms played a role in SVB’s collapse.
Jeremy Allaire and Zac Prince, the respective chief executives of Circle and BlockFi, were questioned on the length of their financial relationships with SVB, amounts deposited with the bank along with what “agreements” were made between their firms.
In addition, the pair wanted to know if SVB offered “perks” such as low-interest rate mortgages or SVB-sponsored “ski trips, conferences and fancy dinners.”
“Congress, bank regulators, and the public are owed an explanation for the bank’s hyper-reliance on tech industry firms and investors," Warren and AOC wrote.
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They added the extent of SVB's depositors in the tech industry resulted "in an abnormally high percentage of deposits" not insured by the Federal Deposit Insurance Corporation (FDIC) and questioned the executives on "the role that companies like yours might have played in precipitating the $42 billion single-day-run on SVB.”
“Obtaining information on these factors is important for understanding how SVB failed and how to prevent the next failure,” they added.
Warren and AOC said they believe it may explain why some customers, such as Circle, placed extremely large amounts of uninsured deposits at SVB.
Shortly after SVB collapsed, Circle disclosed that they had $3.3 billion tied up at SVB. While BlockFi was found to have $227 million in uninsured deposits with the bank.
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