BlockFi tells U.S. bankruptcy court it is ‘the antithesis of FTX’

BlockFi, the first direct victim of the demise of cryptocurrency exchange FTX, told a US bankruptcy judge on Tuesday that it was "the opposite of FTX" and would work to refund customer monies as soon as feasible.

BlockFi requested Chapter 11 protection on Monday, citing the demise of FTX and the turbulence in the cryptocurrency markets. BlockFi has halted withdrawals from its platform earlier in November because of concerns about the stability of FTX.

At the business's initial bankruptcy court in Trenton, New Jersey, BlockFi attorney Joshua Sussberg went to great efforts to distinguish BlockFi from FTX. Sussberg described the intricate financial ties between the two businesses, but made clear that BlockFi did not share the multiple problems that plagued FTX, which dramatically collapsed earlier this month, raising concerns of industry-wide contagion.

BlockFi, on the other hand, had mature and consistent leadership, employed the right experts, and established the necessary procedures and protocols, according to Sussberg. In contrast, FTX's bankruptcy filings revealed missing assets and a complete breakdown of corporate controls.

BlockFi's discovery of FTX's subpar management, according to Sussberg, left them "shocked and dissatisfied."

Sussberg outlined the many ways in which BlockFi and FTX were intertwined while giving Kaplan a history of the company.

Prior to the crypto crisis in May, BlockFi had lent $680 million to the hedge fund Alameda Research, which is associated with FTX.

BlockFi got a $400 million credit facility from FTX in July to keep it viable after the market instability led to the collapse of BlockFi borrower Three Arrows Capital and substantial customer withdrawals. This credit facility included an option for FTX to purchase BlockFi at a later time.

Sussberg said that BlockFi owed FTX $275 million from the bailout of FTX in July and that Alameda had not serviced its $680 million BlockFi loan.

Additionally, BlockFi traded cryptocurrencies on the FTX platform, and as a result of FTX's bankruptcy, BlockFi had $355 million in cryptocurrency locked up.

According to Sussberg, BlockFi wants to ask the court for a decision allowing BlockFi Wallet users to withdraw their money at any time throughout the bankruptcy process.

Sussberg declared, "If it's in your wallet, it stays in your wallet."

In response to regulatory inquiries into the firm's interest-bearing accounts, which the U.S. Securities and Exchange Commission had decided were unregistered securities sales, BlockFi developed its Wallet program. BlockFi agreed to pay a record $100 million fine and stop providing interest-bearing accounts to new U.S. clients in order to end those probes. It also developed the Wallet program for existing U.S. users.

At the hearing on Tuesday, Kaplan gave BlockFi the go-ahead to carry on paying its staff, keeping its bank accounts open, and doing other things required to run its regular business operations throughout the bankruptcy process.

In addition, Kaplan permitted BlockFi to temporarily redact customer names and email addresses from court records, stating that he lacked sufficient knowledge to make a determination regarding whether the names should be made public. After evaluating privacy concerns against the bankruptcy court's disclosure requirements, Kaplan will issue a final decision at a later time.

BlockFi said it owed money to more than 100,000 debtors in a court document submitted on Monday. Between $1 billion and $10 billion were stated as BlockFi's assets and liabilities. The company declared bankruptcy with $256.5 million in cash on hand after selling a chunk of its cryptocurrency holdings earlier in November to finance it.

A first restructuring plan put forth by BlockFi provides two ways out of bankruptcy. Tuesday, Sussberg conceded that the plan is "many gaps," but insisted that it shows BlockFi's dedication to acting rapidly.

Sussberg stated, "We want to move as quickly as we can to give our clients value back."

In accordance with its Chapter 11 plan, BlockFi Wallet clients would receive a complete refund while other account holders and creditors would be given a combination of cryptocurrency, cash, and new equity shares.

A company sale option is also included in the proposal.