Crypto lender BlockFi has sued a Sam Bankman-Fried holding company over his Robinhood stock, just hours after the crypto lender filed for bankruptcy.
Bankman-Fried pledged the shares to BlockFi as collateral on Nov. 9 — intended to back Alameda Research’s payment obligations on $680 million in loans — the same day Binance walked back plans to rescue FTX.
Bankman-Fried’s tangled web of companies would declare bankruptcy two days later, with BlockFi now following suit. BlockFi opted to suspend withdrawals after Alameda (an FTX-linked trading unit) defaulted on the loans, per court documents, indicating BlockFi really needed that money.
BlockFi’s lawsuit is directed at Bankman-Fried’s Emergent Fidelity Technologies, which the former crypto billionaire used to take a 7.6% stake in the discount brokerage in May, equal to more than 56 million shares now worth about $521 million.
ED&F Man Capital Markets (EDFM) is listed as Emergent’s broker in the suit. BlockFi claims the London-based firm declined to transfer the collateral to BlockFi and thus failed to satisfy its obligations.
BlockFi lawyers wrote: “As the holder of the first priority security interest in the collateral, which is property of the BlockFi bankruptcy estates, BlockFi is entitled to have all such collateral immediately surrendered to it and/or liquidated in whatever manner necessary to preserve as much value as possible with the proceeds from any and all such sales transferred to BlockFi.”
Bankman-Fried, who reportedly shopped his Robinhood stake even as he provided it for collateral to BlockFi, is not directly named as a defendant in the suit. Blockworks has reached out for comment.
With no Robinhood stock, BlockFi sold $239 million in crypto
BlockFi’s suit over the Robinhood stock swiftly followed BlockFi lodgement for Chapter 11 bankruptcy, which stated the former tech unicorn faced a “severe liquidity crunch” throughout the collapse of FTX and its subsidiaries.
FTX was meant to be BlockFi’s white knight. Bankman-Fried struck a deal to potentially acquire the lender for up to $240 million amid the first industry-wide downturn earlier this year.
In early November, BlockFi made a borrowing request under an FTX loan agreement part of the acquisition deal. FTX did not honor the request, court documents show.
BlockFi’s own demise naturally means the FTX bailout deal is now invalid.
A declaration filed by BlockFi legal counsel on Monday showed the lender sold almost $239 million in crypto to bolster cash for administrative costs. The firm believes this amount will be enough to fund its bankruptcy, so it is not seeking debtor-in-possession financing at the moment.
Questions remain as to whether that meant BlockFi dumped customer-deposited funds to cover legal costs. BlockFi didn’t return Blockworks’ request for comment by press time.
Before the lender filed for bankruptcy, some two-thirds of BlockFi’s remaining 300 employees were warned of impending job cuts, company adviser Mark Renzi said in a declaration.
FTX’s troubles has left the company with “no choice” but to seek court protection, he added. BlockFi now wants to organize a standalone reorganization in court rather than sell itself, but is open to alternatives that maximize value for its some 100,000 creditors.
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