Bankrupt cryptocurrency lender BlockFi is resisting the attempts of fellow bankrupt entities, FTX and Three Arrows Capital, to recover substantial funds to repay creditors. BlockFi has argued that its own creditors should not be treated as the last in line for repayment, as F TX's creditors suffered Due to FTX's alleged misappropriation of $5 billion lent to it by BlockFi.
In a recent filing with a New Jersey bankruptcy court, BlockFi contended that FTX seeks to recover over $5 billion from BlockFi's estate, which would ultimately harm the legitimate creditors, including BlockFi's customers. BlockFi is urging the court to dismiss FTX's claim ms under the "unclean hands doctrine," citing FTX's alleged fraudulent activities.
FTX had invested in BlockFi's equity under a loan agreement and provided $400 million to BlockFi in June 2022. However, BlockFi argued that this investment was not a standard loan but an unsecured 5-year agreement with below-market rates and delayed repayment ter ms. BlockFi asserts that FTX's investment should not be considered a valid claim that its creditors are obligated to cover.
BlockFi further contends that its legal battles with FTX, Three Arrows Capital, and others could potentially cost the company up to $1 billion. This could impact the amount owed to its creditors. BlockFi's bankruptcy case involves over 100,000 credit ors, with the company estimating its debt to be around $10 billion. Major creditors include the bankrupt crypto hedge fund 3AC.
While BlockFi's trading practices with FTX and Alameda Research, FTX's trading firm, have faced criticism, the company reached a settlement with its creditors last month to proceed with a repayment plan. BlockFi filed for Chapter 11 bankruptcy in November 2022, a few we eks after FTX filed for bankruptcy under similar circumstances.
