BlockFi Had 'Significant Exposure' To Embattled FTX. Now, It's Filed For Bankruptcy.

The crypto lender had a $400 million line of credit with failed crypto exchange FTX.

learn more about Gabrielle Bienasz

By Gabrielle Bienasz

Flori Marquez, co-founder and COO of BlockFi.

On the same day it filed bankruptcy proceedings, BlockFi mounted a legal attempt to get collateral for a loan that Alameda Research took out from BlockFi, the Financial Times reported. BlockFi specifically is suing Bankman-Fried's holding company, which is called Emergent Fidelity Technologies.

Emergent made a deal with BlockFi to get a loan for Alameda Research, the also-now-disgraced trading firm related to FTX. The collateral for the loan was Sam Bankman-Fried's shares in Robinhood, a retail day-trading company. Sam Bankman-Fried purchased a 7.6% share this year.

BlockFi is asking that Emergent, the holding company, sell the stock and give it the funds or hand over the stock, essentially. The FT also reported that Bankman-Fried had apparently tried to sell that Robinhood stock while he was scrambling to save FTX, per two people close to the issue.

Original story below.

The contagion has come home to roost.

Cryptocurrency fintech BlockFi filed for bankruptcy on Monday, the company announced in a press release.

The company noted on its website all operations on the platform have been paused (but it had already stopped user withdrawals earlier this month) and said in a release that Chapter 11 proceedings will allow it "to stabilize its business" and "consummate a comprehensive restructuring transaction that maximizes value for all clients and other stakeholders."

BlockFi has been linked to now-disgraced crypto lender and its affiliated companies, FTX and Alameda Research, which collapsed earlier this month after revelations about its liquidity. According to BlockFi's website statement, it has "the necessary liquidity to explore all options."

BlockFi was founded in 2017 by Zac Prince and Flori Marquez as a link between the crypto and traditional finance worlds, with a crypto-backed loan product, for example. It was valued at highs of around $3.8 billion in 2021.

Related: 'I'm Sorry. That's The Biggest Thing.' Sam Bankman-Fried and Cryptoworld Lose Big in FTX Meltdown, Company Files For Bankruptcy

But things went sour for the company when an earlier wave of market contagion hit cryptocurrency in June. Along with a rout in stocks of large tech companies, the value of various nontraditional currencies sank. Financial "contagion" generally means the movement of market fallout from one place to another. But it hit particularly hard in the more volatile world of crypto, exposing holes in companies like Celsius Network, which paused all user withdrawals in June and filed for bankruptcy in July.

Related: Celsius Network Files For Bankruptcy, Customers Unlikely to Get Money Back

Bitcoin has lost 66% of its value since the beginning of the year.

Amid the summer chaos – wherein fellow crypto fintech Voyager Digital also filed for bankruptcy — crypto exchange FTX appeared to be a "white knight" of sorts, lending a $400 million line of credit to BlockFi, per the New York Times, and giving it the option to buy the company.

As such, BlockFi was inextricably linked to FTX, which turned out to have poor corporate controls, according to bankruptcy filing documents, and massive holes in its balance sheet.

"We do have significant exposure to FTX and associated corporate entities that encompasses obligations owed to us by Alameda, assets held at, and undrawn amounts from our credit line with FTX.US," BlockFi's statement said.

"While we will continue to work on recovering all obligations owed to BlockFi, we expect that the recovery of the obligations owed to us by FTX will be delayed as FTX works through the bankruptcy process," it added.

A crypto broker, Genesis, also paused withdrawals on the platform in mid-November, as it had $175 million of financial linkage to FTX, the NYT noted.

Related: 'A Complete Failure of Corporate Control': FTX Corporate Attacks Sam Bankman-Fried in Bankruptcy Filing

BlockFi also faced in February a $100 million penalty from the SEC for not registering its crypto lending product.

Whether or not (or how) crypto holders will get money back from a series of cascading disasters in the sector remains to be seen.

"We know the past few days have been incredibly difficult for you. We are deeply saddened to see the devastation that is cascading across an industry that we love and believe in, touching the lives of so many people. Our top priority remains doing the best we can for our clients," the company added.

Gabrielle Bienasz

Entrepreneur Staff

Gabrielle Bienasz is a staff writer at Entrepreneur. She previously worked at Insider and Inc. Magazine. 

Related Topics

Editor's Pick

This 61-Year-Old Grandma Who Made $35,000 in the Medical Field Now Earns 7 Figures in Retirement
A 'Quiet Promotion' Will Cost You a Lot — Use This Expert's 4-Step Strategy to Avoid It
3 Red Flags on Your LinkedIn Profile That Scare Clients Away
'Everyone Is Freaking Out.' What's Going On With Silicon Valley Bank? Federal Government Takes Control.

How to Detect a Liar in Seconds Using Nonverbal Communication

There are many ways to understand if someone is not honest with you. The following signs do not even require words and are all nonverbal queues.

Business News

These Are the Most and Least Affordable Places to Retire in The U.S.

The Northeast and West Coast are the least affordable, while areas in the Mountain State region tend to be ideal for retirees on a budget.


4 F1 Racing Lessons That Can Accelerate Your Career

For F1 drivers like Lewis Hamilton and Max Verstappen, these racing lessons are second nature, but they don't just apply to the tracks — they can also help to position you as a leader and accelerate your success as an entrepreneur.

Business News

Carnival Cruise Wants Passengers to Have Fun in the Sun — But Do This, and You'll Get Burned With a New $500 Fee

The cruise line's updated contract follows a spate of unruly guest behavior across the tourism industry.