BlockFi, which hopes to recover funds owed by FTX, declared bankruptcy in November 2022 following the collapse of FTX, which itself filed for Chapter 11 weeks earlier. That bankruptcy triggered an immediate stay in the proceedings between the two companies.
But a court order by U.S. Judge Michael Kaplan issued Monday (Nov. 13) ended that stay, saying that FTX debtors can now offer “arguments, defenses, counterclaims, setoffs, or otherwise … with respect to the BlockFi claims in the FTX bankruptcy proceeding.”
BlockFi had around $355 million frozen on FTX, while FTX’s sister firm, Alameda Research, owes the company another $671 million.
The company emerged from bankruptcy last month, announcing that it was winding down its operations as it focused on returning crypto assets to customers.
BlockFi said customers with interest-bearing Earn accounts should receive between 39.4% and 100% of the value in their accounts, meaning that while some customers may receive their full funds back, others may not.
The firm suffered a solvency crisis during the summer of 2022 after crypto prices plunged, rocking the digital asset markets. In need of a lifeline, BlockFi accepted a $400 million revolving credit facility from FTX. That deal also gave FTX the option to purchase BlockFi for $240 million, depending on certain performance triggers.
BlockFi reportedly used most of the credit facility to fix its balance sheet, and it extended millions of dollars of loans that used FTX’s FTT tokens — which would soon become worthless — as collateral.
Prince told the court that BlockFi loaned Alameda nearly $2 billion before FTX’s collapse and that he was unaware that FTX was also loaning money to Alameda.
He testified that BlockFi would not have lent Alameda money if it had been aware that the trading firm was using FTX customer funds, and that Blockfi declared bankruptcy because of Alameda and FTX.
Bankman-Fried was ultimately convicted and faces what could add up to a life term in prison at his sentencing next year.
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