Crypto lender BlockFi files for Chapter 11 bankruptcy amid FTX fallout

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Cryp­tocur­ren­cy lender Block­Fi has filed for Chap­ter 11 bank­rupt­cy pro­tec­tion. The move comes just over two weeks after Block­Fi , includ­ing with­drawals, in the wake of cryp­to exchange FTX’s implo­sion. “Giv­en the lack of clar­i­ty on the sta­tus of FTX.com, FTX US and Alame­da, we are not able to oper­ate busi­ness as usu­al,” the com­pa­ny . With­drawals remain paused.

“BlockFi’s chap­ter 11 cas­es will enable Block­Fi to sta­bi­lize its busi­ness and pro­vide Block­Fi with the oppor­tu­ni­ty to con­sum­mate a reor­ga­ni­za­tion that max­i­mizes val­ue for all stake­hold­ers,” Block­Fi said. “The court-super­vised restruc­tur­ing process is trans­par­ent and encour­ages dia­logue between all stakeholders.”

As with many oth­er play­ers in the indus­try, Block­Fi faced an uncer­tain future after sev­er­al cryp­to com­pa­nies , tak­ing the prices of many cryp­tocur­ren­cies down with them. Soon after, FTX to prop up Block­Fi with a $400 mil­lion cred­it line. The agree­ment also gave FTX the option to buy Block­Fi for up to $240 mil­lion. As notes, that meant the com­pa­nies had close finan­cial ties and FTX’s has had a knock-on effect on BlockFi.

“With the col­lapse of FTX, the Block­Fi man­age­ment team and board of direc­tors imme­di­ate­ly took action to pro­tect clients and the com­pa­ny,” Mark Ren­zi of Berke­ley Research Group, Block­Fi’s finan­cial advi­sor, . “From incep­tion, Block­Fi has worked to pos­i­tive­ly shape the cryp­tocur­ren­cy indus­try and advance the sec­tor. Block­Fi looks for­ward to a trans­par­ent process that achieves the best out­come for all clients and oth­er stakeholders.”

Block­Fi says that, as part of its restruc­tur­ing, it will “focus on recov­er­ing all oblig­a­tions owed to Block­Fi by its coun­ter­par­ties, includ­ing FTX and asso­ci­at­ed cor­po­rate enti­ties.” How­ev­er, it not­ed that recov­er­ies from FTX are like­ly to be delayed, giv­en that com­pa­ny’s bank­rupt­cy process. In addi­tion, Block­Fi says it has $256.9 mil­lion in cash on hand, which should pro­vide “suf­fi­cient liq­uid­i­ty to sup­port cer­tain oper­a­tions dur­ing the restruc­tur­ing process,” such as pay­ing employ­ee wages and con­tin­u­ing benefits.

In , Block­Fi esti­mat­ed it had more than 100,000 cred­i­tors and con­sol­i­dat­ed lia­bil­i­ties of between $1 bil­lion and $10 bil­lion. Among the list­ed cred­i­tors are FTX (to which it owes $275 mil­lion in loan repay­ments) and the Secu­ri­ties and Exchange Com­mis­sion, which it owes $30 million.

Ear­li­er this year, Block­Fi agreed to from the SEC and 32 states. The SEC claimed that Block­Fi offered inter­est accounts with­out reg­is­ter­ing them under the Secu­ri­ties Act. The agency also found that the com­pa­ny made “false and mis­lead­ing” claims relat­ed to the lev­el of risk in its lend­ing activ­i­ty and loan portfolio.

Fil­ing for Chap­ter 11 bank­rupt­cy pro­tec­tion does­n’t inher­ent­ly mean a com­pa­ny is done for. The process allows a strug­gling busi­ness to keep trad­ing while it restruc­tures and looks for ways to pay back cred­i­tors. How­ev­er, bank­rupt­cy isn’t easy to come back from, and Block­Fi is just the lat­est in a long line of domi­noes to fall in the pre­car­i­ous cryp­to industry.

All prod­ucts rec­om­mend­ed by Engad­get are select­ed by our edi­to­r­i­al team, inde­pen­dent of our par­ent com­pa­ny. Some of our sto­ries include affil­i­ate links. If you buy some­thing through one of these links, we may earn an affil­i­ate com­mis­sion. All prices are cor­rect at the time of publishing.



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