BlockFi argues its creditors, not FTX’s, are the “ultimate victims” of FTX’s alleged fraud.
Bankrupt cryptocurrency lender BlockFi is trying to block attempts by the similarly bankrupt FTX and Three Arrows Capital that aim to retrieve hundreds of millions of dollars to pay back their creditors.
BlockFi claimed in an Aug. 21 filing to a New Jersey bankruptcy court that its own creditors shouldn’t be pushed to the back of the line because FTX’s creditors were harmed by the exchange allegedly misappropriating $5 billion BlockFi lent it.
“To prevent further injustice to the creditors of BlockFi’s estates, the Court should disallow the FTX Claims under the doctrine of unclean hands,” BlockFi added.
FTX also provided $400 million to BlockFi in June 2022 in addition to buying BlockFi equity pursuant to a loan agreement, the filing stated.
However, BlockFi claimed it wasn’t a standard loan agreement — it was an unsecured, 5-year term that was well below market interest rates and repayments weren’t due until the firm would supposedly mature.
BlockFi referred to FTX’s investment as a “gamble” that BlockFi creditors shouldn’t be liable for.
“Just because FTX’s fraudulent actions caused FTX’s bet to fail does not mean BlockFi’s creditors are now somehow liable to refund the purchase price,” it argued.
BlockFi suggested a loan from FTX was a “gamble” that the market would stabilize. Source: Kroll
BlockFi claimed 3AC committed fraud with the money it borrowed and argued it also shouldn’t be entitled to a potential repayment.
BlockFi claims its litigation with FTX, 3AC and other firms could cost it up to $1 billion — impacting the amount its creditors are owed.
Several BlockFi creditors previously accused the firm of overlooking several red flags before transacting with FTX and its trading firm Alameda Research in the months prior to FTX’s collapse in November 2022.
Despite this, creditors settled with BlockFi last month to move forward with a repayment plan.
BlockFi filed for Chapter 11 bankruptcy on Nov. 28, about two weeks after FTX similarly filed for bankruptcy.
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