BlockFi Says FTX and Three Arrows Don’t Deserve Repayment

Bankrupt cryptocurrency lender BlockFi said two other failed crypto firms aren’t entitled to its money.

In bankruptcy court documents filed this week, the company made arguments about why FTX and Three Arrows Capital (3AC) shouldn’t get what they are asking for.

In the case of FTX, BlockFi said the fraud at Sam Bankman-Fried’s platform caused it to lose more than $1 billion worth of property.

“FTX’s fraud was also a primary cause of BlockFi’s bankruptcy,” the filing said. “Despite its admitted fraud, lack of accurate books and records, paucity of controls, serial breaches of fiduciary duty, and outright theft of creditor assets — despite all these wrongful acts — FTX filed defective claims against the BlockFi estates, each of which is meritless, for over $5 billion.”

In a separate filing, BlockFi accused the now-defunct Three Arrows of using fraud to borrow money from it. Some of that money was paid back when 3AC “failed to respond to a margin call and BlockFi foreclosed on posted Collateral. 3AC owes BlockFi for this deficiency. BlockFi owes 3AC nothing.”

BlockFi filed for bankruptcy in November, weeks after the downfall of FTX. The company had undergone a solvency crisis during the summer of 2022 after crypto prices plunged, rocking digital asset markets.

In need of rescue, BlockFi grabbed a lifeline tossed by FTX in the form of a $400 million revolving credit facility. The same deal gave FTX an option to purchase BlockFi for $240 million, depending on certain performance triggers.

BlockFi used most of the credit facility to remedy its balance sheet and extended millions of dollars in loans using FTX’s FTT tokens as collateral.

FTX’s plan for repaying its creditors could leave the people still holding the FTT token out in the cold.

The repayment plan recommended settling customer claims in cash, while also indicating FTX could still relaunch as an offshore cryptocurrency exchange.

The plan called for the development of three main recovery pools: one for “segregated assets attributable to FTX.com customers,” another composed of FTX U.S. customers, and the third for other assets that the “Debtors contend are not clearly attributable to the exchanges.”

In addition, the plan recommended “the extinguishment of FTT claims in recognition of the equity-like characteristics of FTT.”

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