BlockFi to provide over $100K in refunds to California clients

March 28, 2023 Coin Telegraph

Blockfi

At least 111 BlockFi borrowers had continued repaying loans between Nov. 11 and Nov. 22, even though they didn't need to, according to court documents.

Bankrupt crypto lender BlockFi has agreed to refund more than $100,000 to California customers that had continued to repay loans even after a trading halt on Nov. 10 last year.

According to a March 27 statement from California's financial watchdog, the Department of Financial Protection and Innovation (DFPI), its investigation discovered at least 111 borrowers in California paid back roughly $103,471 in loan repayments between Nov. 11 and Nov. 22.

The regulator claimed that BlockFi failed to "provide timely notification to borrowers that they could stop repaying their BlockFi loans."

Californian @BlockFi users: BlockFi to refund over $100k after failing to notify borrowers about halting repayments post-FTX crash. The motion was filed, with a hearing set for April 19, 2023. Updates to follow. More info: https://t.co/bJkiyfgA1b #FTX #BlockFi #CryptoRefund pic.twitter.com/u0QpwY6oou
— CA Department of Financial Protection & Innovation (@CaliforniaDFPI) March 27, 2023

The DFPI claims that borrowers were not notified until Nov. 22 that they could stop repaying their BlockFi Loans "until further notice."

According to documents, BlockFi requested permission from the bankruptcy court to return these payments to the borrowers in a motion filed with the court on Feb. 24, 2023.

The refunds will be able to go ahead if the motion is approved, with a hearing scheduled for April 19.

*Excerpt from the DFPI agreement filed in court. Source: DFPI*

Meanwhile, the DFPI said BlockFi has agreed to an "interim suspension" of its California Financing Law (CFL) license while "the bankruptcy and revocation actions are pending."

"If this motion is granted BlockFi agrees to direct the Servicer to timely return borrowers' payments, including interest and late fees and all funds paid following the November 10th platform pause," according to the DFPI documents.

Unless otherwise ruled by the bankruptcy court, the regulator said BlockFi's agreement to the interim suspension means it will continue to direct its agents to pause the collection of repayments for California customers on loans, interest payments and "not charge, levy, or assess any late fees associated with any payments, including at maturity."

BlockFi has also agreed to continue not reporting to credit agencies that loans from California residents have become delinquent or defaulted on or after Nov. 11, 2022, and will not take “any action that may harm California residents’ credit scores on such loans.”

According to the DFPI, Commissioner Clothilde V. Hewlett previously suspended BlockFi's lending license for 30 days beginning on Nov. 11, 2022 and moved to revoke BlockFi's CFL license on Dec. 15, 2022.

BlockFi halted client withdrawals and requested clients not to deposit to BlockFi wallets or Interest Accounts on Nov. 10, citing a lack of clarity around the FTX collapse.

Today, BlockFi filed voluntary cases under Chapter 11 of the U.S. Bankruptcy Code.https://t.co/adaAx6me4r
— BlockFi (@BlockFi) November 28, 2022

By Nov. 28, BlockFi filed for Chapter 11 bankruptcy for the company and its eight subsidiaries. BlockFi International filed for bankruptcy with the Supreme Court of Bermuda on the same day.

Filing shows BlockFi has uninsured $227M in Silicon Valley Bank MMMF

March 11, 2023 Coin Telegraph

Blockfi

BlockFi’s capital allocated to the money market mutual fund is not FDIC insured, however the fund doesn’t appear to be managed by Silicon Valley Bank.

According to a new bankruptcy filing, defunct crypto lender BlockFi has $227 million worth of uninsured funds allocated to a money market mutual fund (MMMF) offered by troubled Silicon Valley Bank (SVB).

SVB — one of the U.S’s largest banks and key partners to venture-backed companies — was shut down by the California Department of Financial Protection and Innovation (DFPI) on March 10, with no specifics offered at the time of the closure.

The move adds to the recent Silvergate bankruptcy carnage which has seen crypto markets tumble since the crypto-friendly bank’s financial woes came to light at the beginning of March.

Few more bank collapses then up only
— sassal.eth (@sassal0x) March 10, 2023

Looking at the ongoing BlockFi bankruptcy case, a March 10 filing indicates that the firm has $227 million worth of capital in an MMMF offered by SVB.

Notably, the filing highlights a balance summary statement from SVB which states that BlockFi’s investment is not a Federal Deposit Insurance Corporation (FDIC) insured deposit, not insured by any federal government agency and “not guaranteed by the bank.”

The FDIC’s federal deposit insurance covers up to $250,000 per depositor, however it does not cover the scope of money market funds.

A money market mutual fund invests in highly liquid near-term instruments such as cash, cash equivalents and high-quality short-term debt instruments, and is regulated by the U.S. Securities and Exchange Commission.

Investors are issued fund shares in exchange for their capital, and as such, BlockFi’s funds may not be at risk despite SVB’s troubles.

Is this a regular MMF, not affiliated with SVB, custodied at SVB or its securities affiliate? The SVB receivership shouldn't affect that. The MMF is not FDIC insured, but the shares' value would depend on what's in the MMF, not what happens to SVB.
— Matt Waters (@mattwwaters) March 10, 2023

SVB offered several mutual fund investment services, but according to its website it doesn’t appear to have managed any of the funds itself. The firm lists big names such as BlackRock, Morgan Stanley and Western Asset Management as the fund managers.

As such, the risk to BlockFi in this instance is most likely hindered by the fund’s performance, and not anything related to SVB’s financial woes.

One firm that looks to be directly impacted by the SVB closure — and the Silvergate bankruptcy — is USD Coin (USDC) issuers Circle.

According to the company’s latest audit report, as of Jan. 31, $8.6 billion, or roughly 20% of its reserves, were held up in several U.S. financial institutions including SVB, Silvrgate and Bank of New York Mellon.

The exact value held up in SVB and Silvergate is unclear, however Circle issued a statement via Twitter on March 10 noting that the firm and USDC will continue to “operate normally” as it awaits “clarity on how the FDIC receivership of SVB will impact its depositors.”

Silicon Valley Bank is one of six banking partners Circle uses for managing the ~25% portion of USDC reserves held in cash. While we await clarity on how the FDIC receivership of SVB will impact its depositors, Circle & USDC continue to operate normally.https://t.co/NU82jnajjY
— Circle (@circle) March 10, 2023

At the time of writing, USDC has dropped below the $1 peg to sit at $0.98 as per CoinGecko data.

BlockFi execs, Gemini named in proposed lawsuit by a disgruntled investor

March 2, 2023 Coin Telegraph

Blockfi

Gemini is accused of providing BlockFi with custodial services and misleading information to help BlockFi market its alleged unregistered securities.

An investor with nearly $2 million worth of funds frozen in bankrupt cryptocurrency lender BlockFi has filed a class action complaint against its founders, two directors and crypto exchange Gemini.

In a Feb. 28 complaint filed in the U.S. District Court for the District of New Jersey, investor Trey Greene accused the defendants of numerous wrongdoings, including violating the consumer fraud and exchange acts, breaching its fiduciary duties, as well as offering and selling unregistered securities.

“The unregistered securities sold by the BFI [BlockFi] Defendants on behalf of BlockFi were marketed and sold via a steady stream of misrepresentations and material omissions by Prince and Marquez over several years and through intermittent misrepresentations by Defendant Gemini.”

Greene claims he invested over $1.5 million in interest accounts which are alleged to be unregistered securities, and accrued over $400,000 in capital gains and earned interest which was re-invested.

He is currently unable to withdraw the funds, however, after BlockFi froze all withdrawals on Nov. 10, 2022 — the same day FTX filed for bankruptcy.

*Filing of the proposed class action lawsuit. Source: Bloomberg Law*

Greene further claims that he was induced into buying the “unregistered securities” by misrepresentations from BlockFi’s founders Zac Prince and Flori Marquez that the offerings were comparable to federally-insured bank products.

While the Securities and Exchange Commission (SEC) had charged BlockFi with “failing to register the offers and sales of its retail crypto lending product,” on Feb. 14, the filing claims the exchange had “admitted its [interest] accounts were unregistered securities” during the proceedings that resulted in a $50 million settlement on Feb. 15.

Tyler Winkevoss’ Gemini previously held custody over BlockFi’s clients’ crypto holdings through its custodial services, and is alleged to have misrepresented how accessible these funds were to customers.

“Gemini knew of, and acquiesced in, the materially false and misleading statements about the status the safety and accessibility of Plaintiff’s and class members’ assets at Gemini and about the risks of loss. Gemini supplied materially false and misleading information to BlockFi for use in marketing the BIAs [BlockFi interest accounts].”

Gemini is alleged to have breached the exchange act but was not included in the other allegations.

Greene is seeking damages for each of the alleged counts, including "treble damages" for violations of the consumer fraud act, the costs of his lawyers to be covered, a full refund of all funds acquired by the defendants and accrued interest, as well as a judgment preventing similar violations of the consumer fraud act.

Those represented in the class action are any stockholders of BlockFi that purchased their BlockFi unregistered BlockFi Interest Accounts between Mar. 4, 2019 and Nov. 10, 2022

The defendants will be served with a summons, and must respond to the complaint within 21 days of receiving it or be required to pay the full amount demanded by Greene.

Cointelegraph has reached out to Gemini and BlockFi but did not receive a response by the time of publication.

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Robinhood board gives nod to buy Sam Bankman-Fried’s $578M stake

February 9, 2023 Coin Telegraph

Robinhood board gives nod to buy Sam Bankman-Fried’s 8M stake

Alameda Research

The shares were bought by FTX founder Sam Bankman-Fried and co-founder Gary Wang last year and have been tussled over since the collapse of FTX.

Robinhood’s board of directors has approved a plan to buy back the $578 million stake in their company that was bought by former FTX CEO Sam Bankman-Fried and FTX co-founder Gary Wang last year.

Robinhood confirmed in its fourth-quarter report, published Feb. 8, that it had received board approval to buy back the stake.

“Our Board authorized us to pursue purchasing most or all of our shares that Emergent Fidelity Technologies bought in May 2022," said Robinhood’s chief financial officer Jason Warnick, adding:

“The proposed share purchase underscores the confidence the Board of Directors and management team have in our business.”

The FTX co-founders bought 55 million shares of Robinhood stock — worth $578 million at current prices — in May through Emergent Fidelity Technologies by taking out loans directly from FTX’s sister firm, Alameda Research.

On Jan. 9, the United States Department of Justice (DOJ) seized the 55 million shares — equating to around 7% of the company.

We just announced our financial results for the fourth quarter. Find information on our performance at https://t.co/3l82Sx3F7d
— Robinhood Comms (@RobinhoodComms) February 8, 2023

The assets were seized following a court filing from cryptocurrency lending platform BlockFi to reclaim the shares, as Bankman-Fried and Wang used the shares as collateral to take out a loan from BlockFi.

Warnick told CNBC on Feb. 8 that Robinhood has been working with the DOJ on a plan to facilitate the buyback but nothing has been finalized yet.

The shares in question have been the subject of more than one dispute.

On Dec. 23, FTX asked the court to stop BlockFi from claiming the Robinhood shares, following the exchange’s collapse in November.

Meanwhile, although Emergent Fidelity didn’t file for bankruptcy in November like FTX and other FTX-affiliated entities, the firm did file for bankruptcy protection on Feb. 3.

Q4 crypto revenue falls

The United States-based trading platform saw cryptocurrency-based transaction revenues from its “Robinhood Web3 Wallet” fall 24% to $39 million in the fourth quarter, compared to the third quarter. Revenue in the third quarter fell 12%, compared to the second quarter.

Overall net revenues increased by 5% to $380 million in Q4 2022. However, the firm reported an overall net loss of over $1 billion in 2022.

The fall in crypto-related revenue comes despite the firm managing to roll out the Robinhood Web3 Wallet to more than 1 million waitlisted users over the quarter.

In just a few hours since the earnings report was released, Robinhood’s stock, tickered HOOD, is up 4.78%, according to Google Finance.

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BlockFi gets court nod to sell crypto mining assets

January 31, 2023 Coin Telegraph

Blockfi

It is understood that BlockFi wants to get bids in as quickly as possible to make the most of the current market conditions.

Bankrupt crypto lender BlockFi has been granted court approval to sell off its crypto mining equipment as part of ongoing efforts to repay its creditors.

A court document filed on Jan. 30 in the United States Bankruptcy Court for the District of New Jersey stated that the approval for BlockFi to sell its assets was on the grounds that it was “fair, reasonable and appropriate under the circumstances.”

The court acknowledged the sale of the assets is “designed” to maximize the recovery and “realizable value” of the company.

With the court giving BlockFi the green light, more bids are now expected to roll in for the crypto lender's crypto mining assets.

The document stated “all qualified bids” must be sent to the parties specified in the bidding procedures by the Feb. 20 deadline.

The bids must be filed with the court by Mar. 2 and the creditor's representatives have until Mar. 16 to make objections to the sale of the assets to the qualified bidders.

To participate in the bidding process, potential bidders must deliver a “written proposal” to each of the “co-counsel to the debtors.”

The proposal must include the proposed purchase price as well as the specific assets the potential bidder is interested in acquiring and how they will finance the assets.

According to a Jan. 31 Bloomberg report, BlockFi’s tight deadline is an effort to get bids as quickly as possible to make the most of the current market conditions, which have seen most cryptocurrencies experience a price rally after months of sideways price action.

The report noted BlockFi’s lawyer, Francis Petrie, told the court the company has already received interest from bidders for various assets and expects more to come.

On Jan. 24 BlockFi was selling off $160 million in loans backed by approximately 68,000 Bitcoin (BTC) mining machines as part of bankruptcy proceedings.

BlockFi started the process of selling off the loans last year with some having already defaulted given the crypto market conditions.