The Sam Bankman-Fried-owned business that holds millions of shares in Robinhood has filed for bankruptcy.
The bankruptcy filing by Emergent Fidelity Technologies, reported Saturday (Feb. 4) by Bloomberg News, is happening amid a larger court battle over who should own the stock in the wake of the downfall of FTX Group, the crypto exchange founded by Bankman-Fried.
The 55 million shares of the financial trading platform — worth more than $590 million — were seized by federal prosecutors last month, although multiple parties claim ownership of them: The U.S. Justice Department, Emergent, crypto lender BlockFi, and Bankman-Fried himself.
The Bloomberg report notes that the bankruptcy filing gives Emergent and its liquidators breathing room.
Those liquidators’ “duties are to the debtor’s creditors, whoever those creditors may be,” Angela Barkhouse, one of the liquidators, said in a court filing, per Bloomberg.
“Given the many parties claiming to be creditors or outright owners of the debtor’s assets in proceedings in the U.S., the JPLs [joint provisional liquidators] believe that Chapter 11 protection is the only practical way to empower the debtor to defend itself, the assets, and its creditors’ interests in the U.S.”
Prosecutors took possession of the Robinhood shares in January as part of a larger seizure of assets in the case of Bankman-Fried. The 30-year-old former crypto wunderkind is accused of multiple counts of fraud and conspiracy connected to the collapse of FTX last year.
Bankman-Fried, who has maintained his innocence, has said he needs the Robinhood shares to help fund his defense.
“Mr. Bankman-Fried has not been found criminally or civilly liable for fraud, and it is improper for the FTX Debtors to ask the Court to simply assume that everything Mr. Bankman-Fried ever touched is presumptively fraudulent,” his lawyers said in a court filing.
The latest turn in the FTX case is happening as federal regulators are putting more pressure on the crypto industry ecosystem, as PYMNTS wrote recently.
For example, prosecutors in the Department of Justice’s (DOJ) fraud unit have begun looking into Silvergate Capital’s banking relationship with FTX and sister company Alameda Research. The investigation does not accuse Silvergate of wrongdoing.
The probe comes weeks after U.S. Sens. Elizabeth Warren (D-Mass.), John Kennedy (R-La.) and Roger Marshall (R-Kan.) wrote a strongly worded letter to Silvergate seeking answers around the bank’s role in “facilitating the transfer of FTX customer funds to Alameda.”
Silvergate has repeatedly stressed that it is reviewing transactions involving accounts connected to FTX and Alameda.
The bank claims that it conducted due diligence on FTX and Alameda during onboarding and that it is investigating transactions linked to Bankman-Fried’s failed enterprise. Silvergate is subject to yearly exams by the Federal Reserve along with independent audits.
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