BlockFi Still Owes the SEC $30 Million Amid Bankruptcy• December 4, 2022 6:16 pm • Comments
Following the devastating collapse of FTX which affected the entire crypto industry, it seems that another major crypto player has also found itself in a similar situation.
BlockFi found itself in trouble earlier this year when it was accused by the SEC for failing to register the offering of its crypto lending products and was ordered to pay around $100 million as a penalty.
As of right now, the company still needs to pay a remaining $30 million in order to fully pay that penalty.
Crypto lawyers are now looking at the company’s situation and have stated that it will likely pay the SEC first before the company before it pays its retail customers.
The bankruptcy of the company, therefore, will cause more retail investors to lose their money similar to the FTX bankruptcy situation.
The list of largest unsecured creditors is topped by Ankura Trust (owed ~$729 million), who acts as the trustee for BlockFi's interest-bearing crypto accounts.
Second is FTX US, with a $275 million loan.
Fourth is the SEC, to whom they still owe $30 million. pic.twitter.com/XIwM6Q6wRx
— web3 is going just great (@web3isgreat) November 28, 2022
The Jersey City, N.J.-based exchange, which filed for Chapter 11 bankruptcy protection on Monday and simultaneously sued FTX founder Sam Bankman-Fried’s Emergent Fidelity Technologies holding company, is looking to recover the $400 million worth of Robinhood Market shares (HOOD) that Bankman-Fried’s company posted as collateral.
BlockFi also has about $355 million in crypto assets frozen on FTX, a crypto exchange that collapsed this month and filed for Chapter 11 bankruptcy itself on Nov. 11.
On Tuesday, Hodder said the SEC’s fine of BlockFi could also be a message for the crypto industry more broadly.
“What the SEC is trying to say is that all of this lending activity should be considered a debt security,” Hodder said. “And if it was a security, then it would have to be held on a platform that met certain regulatory standards.”
With the collapse of major players such as BlockFi and FTX, this will likely create short term effects on the rest of the crypto market.
BlockFi was previously valued at around $4.8 billion which made it one of the biggest crypto lenders in the industry.
It had relied on FTX to avoid a bankruptcy previously by hoping to get a $400 million credit facility, but the collapse of FTX has removed any hopes of that happening now.
Binance had attempted to save FTX from bankruptcy, but further investigation made Binance state that the situation was already beyond their control to help fix.
Another SEC “regulation by enforcement” success story.
Months after $100M BlockFi/SEC deal BlockFi in b/cy. $275M loan outstanding to FTX from BlockFi. Unknown amounts owed to BlockFi from FTX. Nothing ever registered. Fines paid? With whose money? Consumers decimated. https://t.co/XWflfRDIMk
— Stuart Alderoty (@s_alderoty) November 28, 2022
Approximately 130 additional affiliated companies are part of the proceedings, including Alameda Research, Bankman-Fried’s crypto trading firm, and FTX.us, the company’s U.S. subsidiary. FTX’s new CEO John Ray said in a filing with the Delaware Bankruptcy Court that “in his 40 years of legal and restructuring experience,” he had never seen “such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.”
Ray formerly served as CEO of Enron after the implosion of the energy titan.
In a matter of days, FTX went from a $32 billion valuation to bankruptcy as liquidity dried up, customers demanded withdrawals and rival exchange Binance ripped up its nonbinding agreement to buy the company. Gross negligence has since been exposed. Ray added that a “substantial portion” of assets held with FTX may be “missing or stolen.”
FTX has more than 1 million creditors, according to updated bankruptcy filings, hinting at the huge impact of its collapse on crypto traders and other counterparties with ties to Bankman-Fried’s empire.
Nothing was ever “registered” per the BlockFi/SEC deal. What about the first two payments on the $100M fine? If they were made, did the SEC confirm BlockFi’s ability to pay and/or the source of funds? FTX b/cy shows a $250M loan to BlockFi and now customer funds are blocked.
— Stuart Alderoty (@s_alderoty) November 27, 2022
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