BlockFi, Silvergate, Genesis, and Gemini Update
Updated: Jan 17
Crypto lending firm, BlockFi, filed a presentation for its stakeholders detailing the plans for future court filings and a rundown of the bankruptcy proceedings. It said it reached out to 106 potential buyers shortly after its first bankruptcy hearing and will seek the court’s approval for the bidding to begin on January 30, 2023.
Notably, BlockFi claims no management team members withdrew any crypto since Aug 17, other than 0.2 BTC. This is so different from the Celsius or FTX bankruptcies where the executives were frequently lining their pockets. Prior to August, there were around $15 million of withdrawals by five executives, including $6m by CEO Zac Prince, that were categorized as “litigation settlement payment” or “tax payments routed through executives.”
There’s going to be a published list of assets and liabilities very soon, it was supposed to be filed on Jan 11, but has not yet been published at the time of this recording (Jan 12).
BlockFi filed a motion requesting the turnover of the Robinhood shares that SBF pledged to Zac Prince, which are worth approx $450m, Bankruptcy judge Michael Kaplan denied BlockFi’s motion because the DOJ has seized them in connection to the SBF criminal cases.
The next BlockFi hearing will take place on Jan 17.
Silvergate Bank Update:
Silvergate has not only been sued in a class action for its banking services provided to FTX, but it also recently received a letter from Senators Elizabeth Warren, Marshall, & Kennedy requesting the bank to release all of its records on improper transfers.
Silvergate has withstood over $8b withdrawals in the past months, and it had to sell $5.2 billion of its assets at a deep discount to remain solvent. Silvergate took a $4.3 billion loan from the Federal Home Loan Bank of San Francisco.
The Senators’ letter said, “Your bank's involvement in the transfer of FTX customer funds to Alameda reveals what appears to be an egregious failure of your bank’s responsibility to monitor for and report suspicious financial activities carried out by your clients.”
Silvergate banks many firms in the crypto industry, including bankrupt FTX, Alameda, and BlockFi. As of last September, 90% of all its deposits were from crypto firms.
SBF admitted that FTX customer funds were improperly transferred to Alameda’s bank accounts and that before FTX got a bank account, all customer deposits were routed through Alameda’s Silvergate account. Silvergate’s failure to report these transfers could mean it had an ineffective AML policy. Notably, Silvergate hired Elliptic as its AML/KYC provider.
According to documents filed with the SEC, Brendan Blumer, the founder and CEO of Block.One, purchased 16.8% of Silvergate on Nov 16, 2022, 9.3% personally, and 7.5% through Block.One. Now he is the largest shareholder of Silvergate.
The Class Action lawsuit filed Dec 14, 2022, alleges that Silvergate is liable for the FTX collapse because it had “plain sight” of the crimes being committed and aided and abetted in a breach of fiduciary duty.
Silvergate’s stock has dropped from its high of $238 per share in Nov 2021 to $14 at the time of this writing. Notably, right around it’s ATH, JPMorgan analysts gave it an “overweight” rating and said they expected to see a 60% increase.
Silvergate spent $182m in an attempt to launch its stablecoin backed by gold, the USD, and other crypto assets, it bought the Facebook Libra technology but then had to write it off and reduce its staff by 40% or 200 people. The bank has now lost $718m, more than its profits since 2013.
Silvergate’s CEO, Alan Lane, said Silvergate processed more than $160 billion in digital asset-related transfers in Q3 2021, which was a 300% increase from the same period in 2020.
Both Genesis and Gemini have been charged with Securities Fraud by the SEC.
Cameron Winklevoss published an open letter to the board of Barry Silbert’s DCG, and the first sentence accuses Barry Silbert of committing fraud. On July 6, 2022, Michael Moro, the CEO of Genesis at the time stated, “DCG has assumed certain liabilities of Genesis.” But it was a 10-year promissory note, a complete gimmick that did nothing to improve Genesiss’s immediate liquidity.
Winklevoss accuses DCG of accounting fraud - for characterizing the 10-year promissory note as a current asset when it should have been accounted for as a long-term asset according to GAAP. Current asset is cash, cash equivalents, or other assets that can be exchanged into cash within a year. Instead of booking these swaps as the risky derivatives that they were, Genesis hid them by mischaracterizing the first and last legs of these swaps transactions as collateralized loans on the balance sheet, making the balance sheet appear healthier than it was and fraudulently inducting lenders to continue making loans.
Winklevoss calls for Barry Silbert to step down.
Meanwhile, Barry Silbert’s other company, GBTC, was up 12% yesterday. Valkyrie Investments submitted a proposal to sponsor and manage the GBTC. Valkyrie manages $180m today, and GBTC is a $10.5 billion product.