BlockFi Faces Difficulty As FTX Accuses Abuse Of Bankruptcy Rules

Key Points:

• FTX accuses BlockFi of abusing bankruptcy rules, while Three Arrows Capital and the SEC oppose BlockFi’s proposed plan.
• Disputed transactions worth billions of dollars are at stake in the legal battle.
• The outcome will be determined in a New Jersey court hearing on July 13.

In a dramatic turn of events, defunct crypto lender BlockFi is facing allegations of abusing bankruptcy rules, as stated in a legal filing by FTX.

With over a billion dollars of disputed transactions hanging in the balance, FTX claims that BlockFi’s proposed plans are unfair and downplay FTX’s significant claims, having bailed out BlockFi last year before facing its own bankruptcy filing.

FTX argues that the plan disregards procedural fairness and due process requirements. FTX cites substantial repayments and collateral related to a loan with its trading arm Alameda Research, as well as collateral pledges worth $1 billion made by Emergent Fidelity, a company established by FTX’s former CEO, Sam Bankman-Fried, to hold shares in Robinhood.

The proposed plans, which are set to be discussed in a New Jersey court hearing on July 13, are also facing opposition from liquidated hedge fund Three Arrows Capital (3AC) and the Securities and Exchange Commission (SEC).

These legal filings aim to untangle complex financial transactions among crypto companies that are undergoing separate bankruptcy cases in their quest to repay customers and other creditors. BlockFi may also have claims against FTX in parallel proceedings held in Delaware, to which FTX’s lawyers anticipate objecting, according to the filing.

In addition to FTX’s opposition, Three Arrows Capital, owed over $220 million by BlockFi, expresses discontent with not being given an opportunity to contest fraud allegations. The SEC also raises concerns over vague and broad clauses that release the crypto lender and its management.

This high-stakes legal battle showcases the challenges and complexities of the cryptocurrency industry as it grapples with bankruptcy proceedings and strives to address the needs of stakeholders. The upcoming court hearing will shed further light on the contested plans and determine the future course of action for BlockFi and its creditors.

As Coincu reported, BlockFi’s creditors submitted a petition to liquidate the firm, claiming management of fraud and misbehavior. The insolvent cryptocurrency lender was accused of delaying proceedings in order to arrange legal releases for key executives.

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