BlockFi attorney Joshua Sussberg emphasised that BlockFi did not face the myriad issues plaguing FTX, which spectacularly imploded earlier this month, sparking fears of contagion across the industry. — Reuters
NEW YORK: BlockFi, the first direct casualty of crypto exchange FTX’s collapse, tells a US bankruptcy judge that the US cryptocurrency lender was “the antithesis of FTX” and that it would seek to return customer funds as quickly as possible.
BlockFi filed for Chapter 11 protection on Monday, citing FTX’s collapse and volatility in the crypto markets. Earlier in November, BlockFi had paused withdrawals from its platform amid uncertainty about FTX’s stability.
BlockFi attorney Joshua Sussberg went to great lengths to distance BlockFi from FTX at the company’s first bankruptcy hearing in Trenton, New Jersey, on Tuesday.
While detailing the companies’ complex financial relationship, Sussberg emphasised BlockFi did not face the myriad issues plaguing FTX, which spectacularly imploded earlier this month, sparking fears of contagion across the industry.
FTX’s bankruptcy filings have revealed missing assets and a complete failure of corporate controls – whereas BlockFi had mature and consistent leadership, hired the right experts and implemented the proper procedures and protocols, Sussberg said.
BlockFi was “shocked and dismayed” to learn about FTX’s poor management, Sussberg told US Bankruptcy Judge Michael Kaplan.
While giving Kaplan an overview of BlockFi’s history, Sussberg described the multiple ways in which the company and FTX were entangled.
BlockFi had loaned US$680mil (RM3.06bil) to FTX’s affiliated hedge fund Alameda Research as part of BlockFi’s broader lending business prior to the crypto crash in May.
After that market turmoil prompted the collapse of BlockFi borrower Three Arrows Capital and significant customer withdrawals, BlockFi obtained a US$400mil (RM1.8bil) credit facility from FTX in July to keep it afloat, which included an option for FTX to buy it at a future date.
Sussberg said Alameda had not repaid its US$680mil (RM3.06bil) BlockFi loan and BlockFi owed FTX US$275mil (RM1.24bil) from the July FTX bailout.
BlockFi also used FTX’s platform to trade cryptocurrencies, and BlockFi had US$355mil (RM1.6bil) in crypto locked up as a result of FTX’s bankruptcy.
Sussberg said on Tuesday that BlockFi intends to seek a court ruling allowing customers in the BlockFi Wallet programme to withdraw their funds during the bankruptcy case if they wish. “If it’s in your wallet, it stays in your wallet,” Sussberg said.
BlockFi’s Wallet programme was created in response to regulatory investigations into the company’s interest-bearing accounts, which the US Securities and Exchange Commission had determined were unregistered securities offerings.
To resolve those investigations, BlockFi stopped offering interest-bearing accounts to US customers, created the Wallet programme for new US customers and agreed to pay a record US$100mil (RM450mil) fine.
During Tuesday’s hearing, Kaplan authorised BlockFi to continue paying employees, maintain bank accounts and take other measures needed to continue its day-to-day operations during its bankruptcy case.
Kaplan also allowed BlockFi to remove customer names and email addresses from court documents for now, saying he did not have enough information to make a final ruling on whether the names should be published.
Kaplan will make a final ruling at a later date, after weighing privacy concerns against the bankruptcy court’s transparency requirements.
In a court filing on Monday, BlockFi said it owed money to more than 100,000 creditors. BlockFi listed its assets and liabilities as between US$1bil (RM4.5bil) and US$10bil (RM45bil). — Reuters
