Block Fi seeks bankruptcy protection as 'shocking' FTX contagion spreads
Crypto lending biz wants its money back "as promptly as practicable"
Crypto lending firm Block Fi declared bankruptcy on Monday, citing the collapse of cryptocurrency exchange FTX Trading Ltd. and affiliates two weeks ago.
"This action follows the shocking events surrounding FTX and associated corporate entities ('FTX') and the difficult but necessary decision we made as a result to pause most activities on our platform," the company said in a note posted to its website.
FTX declared bankruptcy on Friday, November 11, 2022. The apparently $32 billion-dollar biz has imploded and the fallout is spreading far and wide.
It appeared last week that Jersey City, New Jersey-based Block Fi – which lends money to customers who provide crypto assets as collateral – might be ailing when the company decided to pause client withdrawals.
The five-year-old firm said it intends to focus on recovering the money owed to it by FTX and others.
"With the collapse of FTX, the Block Fi management team and board of directors immediately took action to protect clients and the Company," said Mark Renzi of Berkeley Research Group, the Company’s financial advisor, in a statement. “From inception, Block Fi has worked to positively shape the cryptocurrency industry and advance the sector. Block Fi looks forward to a transparent process that achieves the best outcome for all clients and other stakeholders."
Block Fi signed a deal with FTX in July that gave the lending firm a $400 million credit line and gave FTX the option to buy Block Fi for $240 million, rather less than firm's $3 billion valuation in March 2021.
- FTX collapse prompts other cryptocurrency firms to suspend withdrawals
- Big Tech leapt on the blockchain bandwagon but its applications are stuck in cryptocurrency
- FTX disarray declared 'unprecedented' by exec who cleaned up after Enron
- New York cracks down on carbon fuel-based crypto-mining operations
Block Fi claims a broad range of assets ($1 billion to $10 billion) and liabilities ($1 billion to $10 billion) in its Chapter 11 filing [PDF], which covers eight other affiliated entities. Other crypto firms have similarly sought protection from creditors: Celsius Network filed for bankruptcy on July 13, 2022. Voyager Digital did likewise on July 5, 2022.
Perhaps hoping to avoid a similar fate amid the FTX contagion, approximately 150 cryptocurrency firms have applied for bailout funds from Binance, presently the largest cryptocurrency exchange.
Coincidentally, Binance was a rival to FTX and helped accelerate its fall by announcing plans to sell $580 million in FTX's FTT tokens, then announcing a plan to buy the floundering firm, and then backing out of the deal.
As of 2021, according to the Wall Street Journal, Block Fi had between $14 billion and $20 billion in customer deposits and had lent out about $7.5 billion.
In February, Block Fi agreed to pay $100 million to settle US Securities and Exchange Commission charges that it failed to comply with securities laws. The agency found that Block Fi sold a lending product that should have been registered and that "Block Fi made a false and misleading statement for more than two years on its website concerning the level of risk in its loan portfolio and lending activity."
Block Fi agreed to the SEC cease-and-desist order "without admitting or denying the SEC’s findings." ®