Problems for Robinhood Markets – The Cryptonomist

Emergent Fidelity Technologies, the offshore entity that holds 55 million shares of Robinhood Markets Inc (NASDAQ: HOOD).
Filed for bankruptcy Friday as multiple parties seek to claim ownership of the stock, according to reports.

Emergent Fidelity Technologies is also a holding company of Sam Bankman-Fried based in Antigua and Barbuda. In addition, Robinhood shares are valued at over $590 million at current market prices and have been seized by the U.S. government.

Robinhood shares as a point of controversy: here’s why

The Chapter 11 bankruptcy filing gives Emergent Fidelity and its liquidators, appointed by an Antigua court, the power to defend its assets and creditors’ interests in the United States.

Angela Barkhouse, one of the liquidators appointed by the Antigua court, said the following:

“Given the many parties claiming to be creditors or outright owners of a debtor’s assets in US proceedings, liquidators believe that Chapter 11 protection is the only practical way to empower the debtor to defend himself, the assets and the interests of its creditors in the United States.” 

So, Chapter 11 protection gives the company time to navigate complex legal proceedings and ensures that the interests of creditors and assets are protected.

In any case, the company was already the subject of a lawsuit filed in November by BlockFi, a crypto lending company, regarding the status of some 55 million shares of Robinhood. Emergent Fidelity, which is 90 percent owned by Sam Bankman-Fried, holds $20.7 million in cash but has no other assets.

The company’s 10 percent shareholder is Gary Wang, co-founder of FTX Group. The criminal case against Bankman-Fried is scheduled to begin in October, while Wang has already pleaded guilty to fraud. However, despite Bankman-Fried’s majority ownership, the latter no longer controls the entity, court documents state.

Robinhood’s actions have been a point of contention among parties including BlockFi, FTX creditor Yonathan Ben Shimon, and Bankman-Fried himself. On Jan. 6, the Department of Justice announced that it had seized the shares and about US$20 million as part of the lawsuit against FTX and its executives.

Emergent Fidelity Technologies claimed ownership of the shares and $20 million as the “only known assets” previously held by brokerage firm Marex Capital Markets until the Justice Department seizure.

BlockFi and the problems with SBF over Robinhood shares.

As anticipated, BlockFi, a recently failed crypto lending platform, has filed a lawsuit against Sam Bankman-Fried‘s Emergent Fidelity Technologies holding company to regain its shares in Robinhood, pledged as collateral in early November.

The suit was filed in November in the U.S. Bankruptcy Court for the District of New Jersey, just hours after BlockFi filed for Chapter 11 bankruptcy in the same court.

As the document reveals, BlockFi is asking Emergent to return the collateral as part of a Nov. 9 lien agreement, which includes a payment schedule that allegedly has not been met.

BlockFi indicates that the collateral “includes some common stock.” In May, Bankman-Fried acquired a 7.6 percent stake in online brokerage firm Robinhood, purchasing a total of $648 million in shares through investment firm Emergent.

BlockFi, unfortunately, was one of the companies to file for bankruptcy following the collapse of the crypto exchange FTX. In early November, the company had denied that most of its assets were held on FTX, but acknowledged a “significant exposure” on FTX.

In the bankruptcy filing, BlockFi reported assets between $1 billion and $10 billion with liabilities of the same magnitude, as well as more than 100,000 creditors.

U.S. DOJ in the criminal case against SBF.

In early January, the U.S. Department of Justice officially notified the court handling BlockFi’s bankruptcy that it had seized assets as part of criminal proceedings against cryptocurrency exchange FTX and its executives.

In a Jan. 6 court statement, the Justice Department said it seized 55,273,469 shares of Robinhood, worth more than $450 million, to which former FTX CEO Sam Bankman-Fried, BlockFi, and FTX creditor Yonathan Ben Shimon had previously made claims.

The Justice Department also noted that it had taken control of more than $20 million in U.S. currency from brokerage firm ED&F Man Capital Markets. In this regard, the court filing stated the following:

“The charges stem from an alleged wide-ranging scheme by the defendant to misappropriate billions of dollars of client funds deposited on FTX, the international cryptocurrency exchange founded by Bankman-Fried. The charge includes the forfeiture of property constituting or derived from proceeds attributable to a conspiracy to commit wire fraud and property involved in a conspiracy to commit money laundering.” 

Reports on Jan. 4 had suggested that the Justice Department was in the process of seizing Robinhood stock as part of the case against FTX. Bankman-Fried’s legal team confirmed on Jan. 5 that the DOJ had gone ahead with the seizure of the shares, but still argued that the former FTX CEO was entitled to the assets “to pay for his criminal defense.”