Troubled and bankrupt BlockFi repays US$15 million to an investor
Cryptocurrency lender BlockFi followed the collapse of crypto exchange giant FTX and filed for bankruptcy in November.
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The backstory: Cryptocurrency lender BlockFi followed the collapse of crypto exchange giant FTX and filed for bankruptcy in November. It's not surprising that BlockFi had "significant exposure" to FTX and founder Sam Bankman-Fried's crypto empire. After a big crypto price drop last year, the company took a line of credit from FTX to get it out of shaky circumstances. So, after the meltdown of FTX, the blocks kept tumbling, meaning BlockFi was in trouble again since it was relying on FTX's support to stabilize itself. This deal also gave FTX the option to buy BlockFi for US$240 million, essentially putting a price cap on the company's value.
More recently: In an effort to stay afloat, BlockFi laid off 20% of its employees and is now seeking court approval for an employee bonus package to keep the remaining staff from leaving during the bankruptcy process. It also wants to compensate employees who had previously received company equity as part of their pay – especially since that equity had been devalued in the agreement.
The development: In a bold move to settle a threatened lawsuit, the company paid back a big sum of US$15 million to an investor to avoid being sued. The investor, named "Counterparty A," had bought some equity shares in BlockFi before the financial troubles. They threatened to sue, saying the company should have been more transparent about the contagion risks in the market. BlockFi founder Zac Prince also paid out US$6.144 million as part of the agreement.
Key comments:
"I think the important takeaway here is that there was no situation where insiders were pulling money off the platform on the eve of or anywhere near this bankruptcy file," said Joshua Sussberg, a partner at law firm Kirkland & Ellis and representative for BlockFi, during the company's Chapter 11 bankruptcy proceedings. "So this is not the Celsius case where management extracted value on the eve of the file."
"2022 was a new environment for digital assets. They've never been around in a recession or a rising-rates environment," said Katie Talati, director of research at digital asset firm Arca, referring to the crypto market in 2022.
"The weaker economic outlook means people have less disposable income to invest in what they deem as risky assets like crypto," said Marcus Sotiriou, an analyst at digital asset broker GlobalBlock, referring to investors' risk appetites under the current economic climate.
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