By
Chimamanda U. Martha
May 8th, 2024
3AC stated that BlockFi’s efforts to downsize its claims might infringe upon the bankruptcy protection it received through Chapter 15.
Troubled crypto lender BlockFi is looking to push back the efforts from FTX and Three Arrows Capital (3AC) in order to recover billions of dollars of funds. In its court filings on Monday, August 21, BlockFi said that it fell victim to the actions of disgraced FTX founder Sam Bankman-Fried.
BlockFi stated that FTX engaged in a complex scheme with its sister trading company Alameda Research, allegedly misusing customer funds in an effort to deceive investors. The crypto lender said:
“The scheme included fraudulently inducing BlockFi to loan over $1 billion worth of digital assets deposited on the BlockFi platform to Alameda Research.”
FTX, whose founder Bankman-Fried has pleaded not guilty to fraud charges, is aiming to retrieve borrowed funds and assets pledged to BlockFi prior to FTX’s own declaration of bankruptcy in November. This comprises approximately $90 million that BlockFi withdrew from FTX.com.
In early August, BlockFi’s creditors agreed to a settlement that would advance a plan to repay debts. In its latest proposal, bankrupt crypto lender BlockFi stated that customers won’t get the funds not held in their wallets.
Moreover, the company has decided not to reclaim any amounts under $250,000 that customers transferred from BlockFi interest accounts or BlockFi private client accounts to their wallets.
Crypto lender Blockfi is already undergoing a liquidation process since May 2023. It contends that the bankruptcy crypto exchange FTX does not have a claim to the over $5 billion it is requesting.
BlockFi’s Arguments against 3AC
BlockFi is also asserting that the defunct hedge fund 3AC, should not be entitled to repayment due to allegations of fraudulent conduct. In the midst of the previous year, 3AC filed for bankruptcy after engaging in risky cryptocurrency investments. The hedge fund also faces accusations of inadequate risk management.
However, 3AC stated that BlockFi’s efforts to downsize its claims might infringe upon the bankruptcy protection it received through Chapter 15.
This development adds to the ongoing legal saga, potentially exerting a significant impact on repayment outcomes for creditors associated with BlockFi, FTX, and 3AC in their individual bankruptcy cases.
BlockFi had previously cautioned that legal disputes with FTX, 3AC, and other cryptocurrency firms could substantially diminish reimbursements to its clients by as much as $1 billion. The lender also maintains that the retrieval of assets on behalf of its customers hinges on the legal resolutions concerning FTX, 3AC, and related entities.