Ripple blames the SEC for BlockFi’s bankruptcy, as the crypto lender sues Sam Bankman-Fried for his Robinhood shares.
Crypto lender BlockFi filed for bankruptcy earlier this week, after suspending withdrawals, due to its association with failed exchange FTX. Yet, Ripple general counsel Stuart Alderoty seems to think the blame lies more with the Securities and Exchange Commission.
Ripple Blames the SEC
Last year, securities regulators in several US states, along with the federal regulator, brought legal action against the firm. According to regulators, BlockFi was effectively offering unregistered securities by paying customers high interest rates to lend out their tokens. Consequently, it was forced to pay a $100 million fine, which Alderoty said forced it into the hands of FTX.
According to the Ripple general counsel, the payment of the fine had never been properly registered. He also questions whether the SEC confirmed BlockFi’s ability to pay the fine, and whether it properly sourced those funds. According to Alderoty, FTX’s bankruptcy revealed a $250 million loan to BlockFi, suggesting those funds helped finance the fine.
“Despite BlockFi ending up intertwined with FTX and customers left holding the bag, the SEC still markets the BlockFi deal as another ‘win’ for regulation by enforcement,” Alderoty said. “Oh, what a tangled web…”
BlockFi Bankruptcy Revelations
As with FTX, BlockFi’s bankruptcy filings revealed several notable details about the company’s financial dealings. For instance, the filings showed that the SEC is in fact its fourth-largest creditor, to whom it owes $30 million. As Alderoty acknowledged a lack of registration behind the payment of the fine, this could feasibly be an outstanding amount. The filings also showed that BlockFi owes $275 million to West Realm Shires Inc., the entity that operated FTX US.
BlockFi advisor Mark Renzi also revealed further detail upon filing the company’s first day motions following its bankruptcy petition. According to court papers, the company sold $239 million of its own cryptocurrency to cover expected bankruptcy expenses. Renzi said the company warned its 370 employees that up to two-thirds could be dismissed in order to cut costs.
BlockFi Suing Bankman-Fried for Robinhood Shares
In order to reclaim some capital for the proceedings, BlockFi is suing FTX’s Sam Bankman-Fried for his Robinhood shares. Bankman-Fried purchased a 7.6% stake of Robinhood’s Class A shares earlier this year through the company Emergent Fidelity Technologies.
However, in the days leading up to FTX’s bankruptcy on Nov. 11, Bankman-Fried had been rushing to raise additional financing. As part of these hasty dealings, BlockFi said it entered into an agreement with Emergent on November 9. According to the complaint, Emergent pledged the Robinhood shares to BlockFi as collateral for the payment obligations of Alameda Research.
As the bankruptcy filings and this lawsuit demonstrate, these intractable dealings will take a great deal of time to resolve.
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