Proposals put forward by former crypto lender BlockFi constitute an abuse of bankruptcy rules, according to a legal filing filed Wednesday by FTX, with more than $1 billion in disputed transactions at stake.
BlockFi's plans, which were to be discussed at a New Jersey court hearing on July 13, were also challenged by liquidated hedge fund Three Arrows Capital (3AC) and federal regulator the Securities and Exchange Commission ( DRY).
FTX, which bailed out the troubled lender last year before declaring bankruptcy in November, says its significant claims against BlockFi were unfairly downgraded by the proposed plan.
“The BlockFi debtors believe that certain bankruptcy wands can be raised to wipe out the claims of the FTX debtors… without satisfying the basic requirements of procedural fairness and due process” in a proposed liquidation plan filed in June, a declared FTX. “This is an abuse of the plan process.”
FTX cites hundreds of millions of dollars in repayments and guarantees tied to a loan with FTX's trading arm, Alameda Research, and $1 billion in guarantee pledges made by Emergent Fidelity, a company started by FTX chief, Sam Bankman-Fried, to own shares of Robinhood (CAPOT).
The filings are an attempt to unravel the complex financial dealings between crypto companies that are currently facing separate bankruptcies as they attempt to repay customers and other creditors. BlockFi may also have claims against FTX in parallel proceedings pending in Delaware, which FTX's attorneys "expect to oppose," the filing says.
Three Arrows Capital, which says BlockFi owes it more than $220 million, also protested that it had no opportunity to dispute the fraud allegations, while the SEC said the proposed clauses to release BlockFi and his direction were too vague and broad.
After the SEC expressed similar objections regarding crypto lender Voyager, legal delays led Binance.US to withdraw its offer to purchase the company. BlockFi's creditors have also argued that its bankruptcy plan is an expensive and elaborate way to free executives from legal liability for poor financial decisions, and said the company should simply be liquidated.
