Crypto Lender BlockFi Files for Bankruptcy After FTX Collapse – BlockFi is the sector’s most recent big operator to declare bankruptcy, as the fallout from the collapse of the offshore cryptocurrency exchange FTX continues to spread. BlockFi, which functions similarly to a traditional bank by paying interest on savings and leveraging client deposits to finance lending, claims to have $256.9 million in cash on hand. According to court records, FTX owes $275 million to itself and $30 million to the US Securities and Exchange Commission (SEC).
In a statement announcing its Chapter 11 bankruptcy filing, BlockFi said, “This action follows the shocking events surrounding FTX and associated corporate entities and the difficult but necessary decision we made as a result to pause most activities on our platform.” “Since the pause, our team has explored every strategic option and alternative available to us, and has remained laser-focused on our primary objective of doing the best we can for our clients.”
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These Chapter 11 cases will enable BlockFi to stabilize the business and provide BlockFi with the opportunity to consummate a reorganization plan that maximizes value for all stakeholders, including our valued clients. The SEC levied a $100m fine on the company in February for violating securities laws, arguing that the investment products the company offered qualified as unregistered securities. The outstanding $30m debt is apparently the unpaid portion of that fine.
BlockFi has already stumbled close to bankruptcy once already this year, in the wake of spring’s crypto crash. After CEO Zac Prince stated that the company needed a capital injection to avert a liquidity problem, the company negotiated an agreement with FTX that offered it access to $400 million in loans. The deal’s price was FTX’s option to purchase the lender for approximately $240 million, a significant decrease from the lender’s $3 billion peak valuation.
That option was never exercised, and the collapse of the cryptocurrency exchange sparked a bank run at BlockFi, seen by customers as dangerously entangled with Sam Bankman-Fried’s company, that proved terminal. Without the ability to draw on the credit line, nor access its own funds stored on the FTX platform, BlockFi was forced to file for Chapter 11 bankruptcy.
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