Proposals put forward by defunct crypto lender BlockFi are an abuse of bankruptcy rules, according to a Wednesday legal filing made by FTX, with over a billion dollars of disputed transactions at stake.
FTX, which bailed out the troubled lender last year before itself filing for bankruptcy in November, says its sizable claims against BlockFi have been unfairly downgraded by the proposed plan.
“BlockFi Debtors believe some bankruptcy wand can be waived to make the FTX Debtors’ claims disappear… without satisfying basic procedural fairness and due process requirements” in a proposed wind-up plan filed in June, FTX said. “This is abuse of the plan process.”
FTX cites hundreds of millions of dollars of repayments and collateral linked to a loan with FTX’s trading arm Alameda Research, and $1 billion in collateral pledges made by Emergent Fidelity, a company set up by FTX chief Sam Bankman-Fried to hold shares in Robinhood (HOOD).
The filings are an attempt to unravel complex financial transactions among crypto companies which are now undergoing separate bankruptcy cases as they attempt to repay customers and other creditors. BlockFi may also have claims against FTX in parallel proceedings being held in Delaware, to which FTX’s lawyers “expect to object,” the filing said.
Three Arrows Capital, which says it’s owed over $220 million by BlockFi, also protested that it wasn’t being given a chance to contest fraud allegations, while the SEC said proposed clauses to release BlockFi and its management were overly vague and broad.
After the SEC voiced similar objections in relation to crypto lender Voyager, legal delays meant Binance.US pulled out of its offer to buy the company. BlockFi’s creditors have also argued that its bankruptcy plan is a costly and elaborate way to free executives from legal responsibility for poor financial decisions, and have said the company should simply be liquidated.
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