In a first day court hearing after filing for Chapter 11 bankruptcy protection on Monday, lawyers representing crypto lending firm BlockFi called the company "the antithesis of FTX."
"This is the antithesis of FTX," Joshua Sussberg, a Kirkland & Ellis lawyer representing BlockFi, said in his opening statement.
“This has been a company that was focused on creating an opportunity for people that otherwise don't have access to the financial system,” Sussberg added.
Sussberg's argument mirrored the efforts made by BlockFi's bankruptcy declaration on Monday to distance itself from Sam Bankman-Fried's disgraced empire, which filed for Chapter 11 bankruptcy earlier this month.
BlockFi's legal team told a New Jersey bankruptcy court Tuesday the firm has $355 million in digital assets with FTX. Sussberg said the firm plans to collect its assets held with FTX, though he admitted, “that process is going to play out over a long period of time, if I had to make a bet.”
The lawyer went on to say funds held by customers in their BlockFi wallet were not property of the debtor estate and that they intend to “quickly file a motion to allow customers to withdraw from their personal wallets.”
BlockFi has also filed an adversary lawsuit against Emergent Ventures for equity collateral known to represent equity shares of Robinhood (HOOD) purchased by former FTX CEO Sam Bankman-Fried.
In the interim, the New Jersey court Judge approved BlockFi lawyer’s motion to keep its list of creditor names redacted, as was the case with FTX. In its petition, BlockFi revealed it had more than 100,000 creditors with estimated assets and liabilities of between $1 billion and $10 billion.
BlockFi owes more than $1 billion to its three largest creditors which includes $729 million to Ankura Trust, a distressed loan administration company, a $275 million loan from West Realm Shires, the holding company for FTX’s US subsidiary and a $30 million settlement payment to the U.S. Securities and Exchange Commission.
Between May and June, BlockFi took a roughly $80 million loss from defaulted loan obligations owed to the company by bankrupt crypto hedge fund Three Arrows Capital, one of its largest borrowers.
The failure of Three Arrows came after the dissolution of algorithmic stablecoin TerraUSD, which sparked contagion across the crypto sector, hastening withdrawals at BlockFi and its competitors, Voyager Digital and Celsius Network, both of which previously filed for bankruptcy.
BlockFi, however, was saved from insolvency by receiving an emergency bailout of $275 million in credit from FTX in late June.
BlockFi said in a petition earlier this week the company faced a "liquidity shortage" starting in the first two weeks of November. After first requesting $125 million more in credit from FTX, its affiliate company Alameda defaulted on an approximately $671 million collateralized loan obligation to BlockFi.
Hours after the company filed its petition, Mark Renzi of Berkeley Research Group, BlockFi’s financial advisor, declared BlockFi trading volume grew from $2 million to more than $23 billion dollars between 2019 and March 2022 ,while its loan origination business expanded from $687 million to more than $47 billion.
The BlockFi case [No. 22-19361] is available publicly. Customers can also email blockiinfo@ra.kroll.com with questions.
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David Hollerith is a senior reporter at Yahoo Finance covering the cryptocurrency and stock markets. Follow him on Twitter at @DsHollers
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