Crypto Company BlockFi Files For Bankruptcy After FTX Collapse
The BlockFi logo on a smartphone arranged in the Brooklyn borough of New York, US, on Thursday, Nov. 17, 2022. Cryptocurrency lender BlockFi Inc. is preparing to file for bankruptcy within days, according to people with knowledge of the Gabby Jones/Bloomberg via Getty Images
Gabby Jones/Bloomberg via Getty Images

Cryptocurrency lender BlockFi filed for bankruptcy on Monday as a liquidity crisis continues to upend the nascent digital asset sector.

Despite measures taken to protect the company from fallout related to defunct cryptocurrency exchange FTX, which was expected to acquire BlockFi, executives announced efforts to “consummate a comprehensive restructuring transaction that maximizes value” for stakeholders.

“From inception, BlockFi has worked to positively shape the cryptocurrency industry and advance the sector,” Berkeley Research Group Managing Director Mark Renzi, a financial adviser to the company, said in a press release. “BlockFi looks forward to a transparent process that achieves the best outcome for all clients and other stakeholders.”

BlockFi, which presently has $256.9 million on hand, has frozen the use of its platform. The company listed an outstanding $275 million loan to FTX.US in a bankruptcy filing, according to a report from CNBC. The company “expects that recoveries from FTX will be delayed” as fallout in the cryptocurrency sector continues.

The House Financial Services Committee is preparing to hold hearings regarding the collapse of FTX, which is based in the Bahamas, as the Justice Department and the Securities and Exchange Commission continue their own investigations. Regulators are renewing calls for enhanced federal oversight of the industry.

FTX, which had been controlled by 30-year-old multibillionaire Sam Bankman-Fried, filed for bankruptcy after users discovered that trading firm Alameda Research, a company run by former Bankman-Fried love interest Caroline Ellison, had allegedly been using funds from FTX to make investments. Bankman-Fried, whose fortune disappeared overnight when his company folded, initially sought $8 billion from investors to cover withdrawal requests made by customers after the bankruptcy filing. A number of institutional investors marked down their shares in the company over the past several days.

John Ray III, the lawyer who represented plaintiffs after the collapse of Enron, said that the cryptocurrency empire run by Bankman-Fried was the worst example of mismanagement he has ever witnessed. “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” Ray, who succeeded Bankman-Fried as chief executive to manage the bankruptcy, said in court documents. “From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.”

Bankman-Fried garnered controversy as a result of his extensive contributions to the Democratic Party, to which he was among the largest contributors in the most recent midterm elections, as well as his parents’ connections within left-wing political circles. The possible fraudster has also donated millions to media outlets such as Vox, ProPublica, and The Intercept.

Earlier this year, cryptocurrency companies Voyager and Celsius declared bankruptcy. Lawmakers recently increased their skepticism of SoFi, a company which operates both a bank holding company and a cryptocurrency exchange, while other cryptocurrency firms such as Genesis have indicated the looming possibility of bankruptcy. Genesis is owned by Digital Currency Group, which also holds investments in popular exchange platform Coinbase and several dozen other cryptocurrency ventures, according to a report from Axios. Genesis ceased withdrawals and new loan activity last week.

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