- BlockFi exchanged crypto worth around $240 million for fiat at rock bottom rates
- They deposited the funds from the exchange and another $10m into Silicon Valley Bank
- No one posted bond as collateral in case of bank failure
An argument between bankrupt crypto lender BlockFi’s management and its Creditors Committee manifested in a court filing, cited by CoinDesk. According to the lender’s creditors, BlockFi was not a victim of FTX and Alameda Research, contrary to its claims.
Bad management decisions
BlockFi went down due to bad management decisions and equally bad ones made by the lender’s restructuring agents. The filing reads:
Prior to bankruptcy, management did things in contravention of the promises made to BlockFi customers, disregarded the faith and fiduciary responsibilities entrusted to them, and ran their business in a way that caused foreseeable, catastrophic loss. As it segued to bankruptcy, BlockFi sold much of its domestic digital currency, locking in massive trading losses and potentially exposing customers to undesired tax consequences.
Hundreds of millions lost
More specifically, the platform converted crypto worth around $240 million into fiat immediately after FTX collapsed, when the crypto market plummeted. This led to the financial losses and the tax problems mentioned.
Later, BlockFi deposited the funds from the conversion as well as an additional $10 million into Silicon Valley Bank (SVB), which also went bankrupt. According to creditors, SVB was not stable enough to hold these deposits and didn’t meet the protective requirements of the Bankruptcy Code.
In addition, BlockFi spent more than $22 million of clients’ funds to buy an insurance policy for its directors and officers worth $30 million, creditors claim.
No one followed through with the bond
The parties had agreed that SVB would post bond as collateral in case of a bank failure, but no one acting for BlockFi followed through with this. The restructuring team did not post bond.
Bitcoin has added over 60% to its value since the dip in November last year, CoinDesk market data show. The decision to sell the crypto at the time cost BlockFi nearly $100 million, creditors added.
BlockFi holds $1B+ with FTX and Alameda
BlockFi has substantial claims against FTX and its affiliate Alameda Research. The lender’s frozen crypto assets on the defunct exchange amount to $355 million. They also have a $671 million loan to Alameda.
