Cryptocurrency firm BlockFi suspends payments dragged down by FTX crash

Contagion from the FTX cryptocurrency market crash spreads. The latest victim has been the BlockFi platform, which has suspended payments this Monday and has filed for bankruptcy legislation, as announced in a statement. BlockFi, which claimed to have hundreds of thousands of clients, has filed the procedure together with eight of its subsidiaries before a New Jersey court, before which it has presented the corresponding documentation. The company had already blocked the movement of cash and cryptocurrencies from its clients after the fall of the market controlled by Sam Bankman-Fried, with which it maintained close financial and commercial ties.

“With the collapse of FTX, BlockFi’s management team and board of directors immediately took action to protect clients and the company,” Mark Renzi of Berkeley Research Group, the firm’s financial adviser, said in the statement. . “Since its inception, BlockFi has worked to positively shape the cryptocurrency industry and move the sector forward. BlockFi expects a transparent process that achieves the best result for all customers and other interested parties”, he added.

Founded in 2017 by Zac Prince and Flori Marquez, and backed by well-known investment firms, BlockFi was dedicated to trading cryptocurrencies as investment assets among its individual and institutional clients. It lent money by taking clients’ cryptocurrencies as collateral. It proclaimed that it wanted to build “a bridge between digital assets and traditional financial and wealth management products to advance the broader ecosystem of digital assets.” The bridge has been broken. BlockFi joins other firms such as Lenders Celsius Network and Voyager Digital Holdings that, like FTX, have also suspended payments this year. Bitcoin, the main cryptocurrency, has lost two-thirds of its value this year, to the $16,000 level, and was trading lower on Monday with the news of BlockFi’s suspension of payments.

regulatory issues

BlockFi ran into trouble with regulators for marketing loans, accounts and hybrid financial products between cryptocurrencies and traditional investments. Last February, it reached an agreement with the Securities and Exchange Commission (SEC) to pay a fine of 50 million to the supervisor for its bad practices and another amount equal to 32 States, also for its irregularities. The SEC concluded that BlockFi had been making false or misleading statements for more than two years on its website about the risk level of its loan portfolio and lending activity.

Platform activity remains frozen. In the documentation provided to the courts, BlockFi ensures that it has 256.9 million dollars in cash, liquidity that it will use to address the restructuring process. “The company will focus on recovering all obligations owed to BlockFi by its counterparties, including FTX and associated corporate entities. Due to the recent collapse of FTX and its subsequent bankruptcy proceedings, which are still ongoing, the company expects FTX recoveries to be delayed.

BlockFi went through a period of difficulties a few months ago, but it was precisely the FTX market that came to its rescue by providing it with a credit line of 400 million dollars, in an agreement that gave the cryptocurrency market a call option on BlockFi. With the fall of FTX, BlockFi is unable to use the undrawn portion of its credit line and has seen some of its assets trapped. For its part, Block Fi also owes FTX $275 million. In fact, according to the list presented to the court, it is its second largest creditor, only behind Ankura Trust Company, with 729 million. BlockFi owes $1.2 billion to its top 50 creditors, including the SEC, which is in fourth place with $30 million, likely for the unpaid portion of the fine.

BlockFi has filed a series of motions with the court to continue operating. Among them are requests to pay staff salaries and benefits and to establish a retention program for key employees. The company has also launched a plan to reduce expenses, including labor. The firm hopes the process will allow it to carry out a “comprehensive restructuring that maximizes value for all clients and other stakeholders.”

In parallel, its Bermuda-based subsidiary BlockFi International has filed a petition with the Bermuda High Court for the appointment of interim liquidators, although BlockFi anticipates that the claims of that company’s clients will be addressed through the US process.