05-16-2023 icon

BlockFi Victim of Bad Management, Creditors Say

By Lucy Adegbe

A war of words between the BlockFi Creditors Committee and the bankrupt digital asset lender’s management continued in a court filing published late Monday.

The creditors called BlockFi’s narrative that it was a victim of FTX and Alameda a “false case narrative” and blamed the firm’s failure on poor management decisions and subsequently its restructuring agents.

The creditors committee pointed out that in the days after the FTX collapse, when crypto markets plummeted, BlockFi converted around $240 million in cryptocurrency into fiat, resulting in significant financial losses and potential tax issues for customers. BlockFi then deposited the proceeds and an additional $10 million into Silicon Valley Bank (SVB), which later collapsed.

“SVB was not a depository institution of sufficient strength to meet the Bankruptcy Code’s protective requirements, prompting the United States Trustee to object to estate money being deposited there,” creditors wrote. 

“Eventually, an arrangement was reached whereby SVB would post sufficient collateral (in the form of a bond) should there be a bank failure.”

However, nobody at BlockFi bothered to follow through with this, including the restructuring team and no bond was posted, the creditors said. “It’s a good thing the federal government stepped in to bail out all SVB depositors, including BlockFi,” they wrote.

The creditors argued that additionally, BlockFi spent $22.5 million of customer funds to purchase a $30 million insurance policy for its directors and officers.