In the unfolding narrative of BlockFi’s bankruptcy saga, a heated exchange has been taking place between the company’s management and the BlockFi Creditors Committee. As revealed in a court filing, the creditors have charged BlockFi of perpetuating a “false case narrative,” representing itself as a victim of FTX and Alameda. Instead, the creditors assign blame to BlockFi’s management for their poor decisions and the subsequent restructuring attempts, which they believe precipitated the firm’s downfall.
The creditors also shed light on BlockFi’s questionable financial moves, notably the conversion of approximately $240 million in cryptocurrency into fiat following the FTX collapse. According to the creditors, this move led to significant financial losses and potential tax complications for customers. Moreover, they criticized BlockFi’s choice to deposit these funds, along with an extra $10 million, into Silicon Valley Bank (SVB). They argued that SVB was not a sufficiently robust institution to meet the protective requirements of the Bankruptcy Code. Despite an agreement for SVB to post enough collateral (in the form of a bond), the creditors claimed that BlockFi never followed through.
BlockFi’s Questionable Use of Customer Funds and Market Losses
In addition to their criticism of BlockFi’s management and financial choices, the creditors highlighted BlockFi’s use of $22.5 million of customer funds to secure a $30 million insurance policy for its directors and officers. This decision, they argue, was both irresponsible and harmful to the company’s customers.
With Bitcoin seeing a nearly 63% surge since its low point in November 2022, according to CoinDesk market data, the creditors argue that BlockFi’s decision to liquidate then resulted in a loss of almost $100 million in potential value. This financial blunder further solidifies their position against the company’s management and strategy.
BlockFi’s Premature Statements and Court Orders
In a recent twist, BlockFi was ordered by a U.S. bankruptcy court to retract statements related to a wind-down plan that it had prematurely published on May 13. The company was forced to issue a “corrective letter” to clarify that the documents were posted without court approval. These documents had suggested that approximately $1 billion in claims against commercial counterparts like the collapsed crypto exchange FTX and its trading arm Alameda would play a significant role in returning money to the creditors.
Since BlockFi’s bankruptcy filing in November, the firm’s estate and creditors have been in constant conflict, with the latter persistently blaming the firm’s poor management and flawed restructuring plans for its failure. The fate of BlockFi, its creditors, and its customers now hang in the balance as a hearing on the reorganization plan is scheduled for June 20.