SEC Finally Admits FTX Customers’ Assets Were Used to Bail Out BlockFi

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Ripple’s general counsel asks vital questions about the SEC’s role in FTX collapse. 

Ripple’s general counsel Stuart Alderoty has made an important discovery in the SEC’s recently filed charges against FTX and Alameda Research execs. According to Alderoty, the Securities and Exchange Commission recently admitted that FTX and Alameda Research execs – Sam Bankman-Fried and Caroline Ellison – used customers’ assets to bail out embattled cryptocurrency lender BlockFi. 

“On or about June 21, 2022, after giving a $250 million line of revolving credit to BlockFi, a global crypto financial services company, to provide the company with access to capital to ease liquidity concerns, BankmanFried tweeted: We take our duty seriously to protect the digital asset ecosystem and its customers,” the SEC noted. 

Alderoty Raises Vital Questions 

Following the SEC’s comment, Alderoty raised some questions that the agency needs to answer. Alderoty asked if FTX customers’ assets were funneled to the Securities and Exchange Commission to make payments on the $100 million BlockFI/SEC settlement. 

Alderoty also asked whether the Securities and Exchange Commission tried to investigate the source of the funds BlockFi used to settle with the agency. 

The SEC admits that FTX customer assets were used to bail out BlockFi. Were those customer assets funneled to the SEC to make payments on the $100 million SEC/BlockFi settlement? Did the SEC bother to conduct any due diligence on the source of those funds? pic.twitter.com/2VKEC2G01g

— Stuart Alderoty (@s_alderoty) December 22, 2022

SEC Charge BlockFi

Recall that earlier this year, the Securities and Exchange Commission charged BlockFi with failing to register its cryptocurrency lending product. The SEC also charged the crypto lending platform with violating the registration provisions of the Investment Company Act of 1940. 

To settle with the SEC, BlockFi agreed to pay $100 million in penalty, cease the sales of the lending product, and register the business within the provision of the Investments Company Act. 

In June, FTX agreed to provide the crypto lender with a $400 million revolving credit facility, with an option to buy the platform at a maximum of $240 million. Following the collapse of FTX last month, BlockFi filed for Chapter 11 bankruptcy protection, citing its exposure to FTX. 

Minnesota Rep Makes Strong Allegations Against SEC

Meanwhile, questions have been raised about the SEC’s regulatory oversight of the crypto sector following the fall of FTX. SEC’s chair Gary Gensler reportedly had a series of meetings with Bankman-Fried. However, the agency was unable to see the exchange’s collapse coming. 

Last month, Minnesota Rep. Thomas Earl Emmer alleged that the meetings between Bankman-Fried and Gensler were part of efforts by the agency to give FTX special treatment over other crypto firms. 

“They were working with Sam Bankman-Fried and others to give them special treatment from the SEC that others aren’t getting,” Rep. Emmer said. 

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