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BlockFried Bankrupt

Updated: Nov 29, 2022



The key to getting rich in a bear market is becoming a bankruptcy attorney. - Tiffany Fong


Background.

  • BlockFi filed for Ch 11 Bankruptcy in NJ on Cyber Monday, after halting withdrawals on November 10.

  • BlockFi was in the business of offering high yields on various crypto products, it offered 6% on Bitcoin and 9.3% on Tether.

  • The SEC and various state regulators put a real damper on their business when it was sued for $100 million, and forced to shut down its interest accounts in the US.

  • BlockFi nearly went bankrupt in July, and FTX swooped in and offered a $400 million line of credit, and an offer to buy the Company for up to $240m.

  • BlockFi’s CEO, Zac Prince, said he learned of FTX’s demise via Twitter, SBF didn’t even have the courage/respect to make a phone call or private message.

  • BlockFi has 292 staff working today, 288 of which are located in the USA.

  • This time last year, BlockFi raised $350 million at a valuation of $3 billion.


BlockFi sued FTX moments after filing Chapter 11.

  • FTX pledged shares in Robinhood to BlockFi after Alameda defaulted on a $680 million collateralized loan in early November.

  • BlockFi also named brokerage ED&F Man Capital Markets in its lawsuit, saying the London-based company was the broker involved in the pledge agreement. ED&F Man has “refused to transfer the Collateral to BlockFi”, the lender states in the complaint.

What does this mean for retail loans?

  • Loans have gone into forbearance, any amounts due, including interest are set to 0 as of Nov 11. Loans will not be reported as delinquent to credit bureaus.

SEC’s role

  • The SEC is a creditor, they are owed $30 million, and they have priority to be paid back before the retail investors that the SEC is here to protect.

  • The SEC should disgorge the $20 million they’ve already collected, considering this fine is actually contributed in large part to the financial distress.

  • The SEC’s action led BlockFi to engage in the deal with FTX, and to move their customer’s funds onto the FTX platform, only to be wiped out.

Creditors

  • BlockFi has more than 100,000 creditors and between $1 billion and $10 billion in liabilities.

  • Cash on hand - $256.9 million (not nearly enough!)

  • Note the attorney fees from Celsius amount to approx $4m/month)

  • Note there are still 292 staff to pay

  • The top 50 creditors include

  • Ankura Trust Company -$ 729 million

  • FTX US - $275 million

  • SEC $30 million

Attorney Compensation to date

  • Kirkland and Ellis $3,470,000

  • Haynes & Boone $2,654,000

  • Cole Schotz $185,000

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