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FTX Crypto Scandal Continues to Ripple With New BlockFi Lawsuit

  • BlockFi is suing FTX founder Sam Bankman-Fried.
  • It alleges Bankman-Fried collateralized his Robinhood (HOOD) holdings with BlockFi in exchange for loans and hasn’t paid up.
  • BlockFi declared bankruptcy on Monday, the same day it filed the suit.
FTX crypto scandal - FTX Crypto Scandal Continues to Ripple With New BlockFi Lawsuit

Source: Jarretera / Shutterstock.com

Now a month removed from the initial report that brought down FTX, the company’s downfall continues to have a ripple effect. This week, the FTX crypto scandal has brought BlockFi back into the spotlight. The company, which at one point considered Sam Bankman-Fried its savior, is now turning on the entrepreneur in an effort to get its assets back. Meanwhile, it can blame the crypto exchange as it descends into bankruptcy itself.

BlockFi was, at a time, one of the more reputable crypto lenders on the market. However, it was unable to stave off the crypto correction that claimed a grip of crypto investing firms. The beleaguered company had over-collateralized loans with Three Arrows Capital, widely considered the ground zero of the crypto rout which started early in the summer.

This exposure had put the company at risk of bankruptcy, and it needed fast action. At the time, FTX was coming into the public eye with fury, securing advertising deals left and right. FTX founder Sam Bankman-Fried, who we know now was not being truthful, asserted that the company was in great shape and capable of bailing out not just BlockFi, but other endangered companies as well.

So when the two struck a deal to allow FTX to acquire BlockFi, it seemed as though the crisis was averted. Time has shown this wasn’t the case, though. FTX and its sister company Alameda Research suffered what is perhaps the most shocking corporate implosion the crypto space has ever seen. BlockFi is rightfully angry about what FTX had been hiding, and it’s now taking the company to court to get its assets back.

FTX Crypto Scandal: BlockFi Sues Sam Bankman-Fried for HOOD Stock

The FTX crypto scandal is not stopping at FTX’s bankruptcy and Sam Bankman-Fried’s fall from grace. BlockFi is being forced into bankruptcy months after thinking it was safe. As it descends into its own proceedings, though, it’s trying to yank its Robinhood (NASDAQ:HOOD) holdings back from the infamous crypto billionaire.

On Monday, BlockFi was forced to file for Chapter 11 bankruptcy protections, bringing to an end a tumultuous year for the lender. In its first appearance in court, the BlockFi legal team has made a point to distance itself from FTX. The company’s opening comments describe BlockFi as “the antithesis of FTX,” using proper procedures, keeping consistent in leadership and reaching out to experts for assistance.

The BlockFi-FTX scandal spills over into the traditional investing sphere, too, as the company’s new lawsuit shows. Filed on the same day as its bankruptcy protection, BlockFi is going after Sam Bankman-Fried’s stocks. According to the lawsuit, Bankman-Fried’s investing company, Emergent Fidelity Technologies, is in possession of “collateral that belongs to BlockFi.”

Earlier this year, Bankman-Fried had taken a 7.6% stake in e-trading platform Robinhood. BlockFi asserts Bankman-Fried had collateralized this holding through Emergent Fidelity for loans from BlockFi, and that the assets belong to it. Currently, the holding is worth $520 million.

According to reports by the Financial Times, Sam Bankman-Fried was collateralizing this loan while simultaneously trying to sell his HOOD share. All in all, the news is doing well to discredit Bankman-Fried’s image further. And, BlockFi certainly stands to benefit by elevating its complaint to the court.

On the date of publication, Brenden Rearick did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Brenden Rearick is a Financial News Writer for InvestorPlace’s Today’s Market team. He mainly covers digital assets and tech stocks, with a focus on crypto regulation and DeFi.


Article printed from InvestorPlace Media, https://investorplace.com/2022/11/ftx-crypto-scandal-continues-to-ripple-with-new-blockfi-lawsuit/.

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