BlockFi Files For Bankruptcy After FTX Collapses

(CTN News) – In the last week or so, BlockFi has become the latest big operator in the crypto sector to declare bankruptcy.

This is as the fallout of the collapse of the offshore cryptocurrency exchange FTX continues to spread across the industry.

According to BlockFi, the company operates similarly to a conventional bank in that it pays interest on savings and uses customer deposits to fund lending to customers. It has $256.9m cash on hand.

A court document states that some of its creditors include FTX itself, to which it owes $275 million, as well as the Securities and Exchange Commission of the United States (SEC), to whom it owes $30 million.

As part of the announcement along with its Chapter 11 bankruptcy filing, BlockFi said: “In the wake of the shocking events surrounding FTX and associated corporate entities, we have made the difficult but necessary decision to pause most activities on our platform as a result of these events.

Since the pause, our team has explored every strategic option and alternative we could possibly come up with, and has been laser-focused on our primary objective of doing the finest work we can for our clients, despite all of the challenges and obstacles we have faced in the past.

“BlockFi believes that these Chapter 11 cases will enable BlockFi to stabilize the business and provide BlockFi with an opportunity to execute a reorganization plan that will maximize value for all stakeholders, including our valued clients, thereby revitalizing the business.”

In February, the Securities and Exchange Commission imposed a fine of $100 million on the company. This was alleging that it had violated securities laws by offering unregistered securities as investment products.

According to reports, the $30m outstanding debt is the unpaid portion of the fine that was assessed.

As a result of the crypto market crash that occurred in the spring of this year, BlockFi has already come close to bankruptcy once.

Following the CEO’s announcement that the company would need a capital injection to stave off a liquidity crisis, it entered into an agreement with none other than FTX. This agreement gave the company access to $400 million in loans in order to survive.

As part of the deal, FTX had the option to acquire the lender for about $240m. This is a sharp decline from the peak valuation of $3bn when the deal was first announced.

There was no way that Option 2 could be exercised, and the collapse of Bankman-Fried’s company led to a bank run at BlockFi, which was seen by customers as dangerously entangled with Sam Bankman-Fried’s company, and that proved to be terminal.

Because BlockFi was not able to draw on the credit line, nor could it access its own funds stored on the FTX platform, they were forced to file for Chapter 11 bankruptcy protection.

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