BlockFi fights FTX, Three Arrows over potential repayments

BANKRUPT crypto lender BlockFi wants to block attempts by FTX and Three Arrows Capital to get back billions of dollars exchanged between the firms before all three companies unravelled last year.

BlockFi said in a Monday (Aug 21) court filing that it was victimised by Sam Bankman-Fried’s platform and, as a result, failed crypto exchange FTX isn’t entitled to more than US$5 billion being sought. Similarly, BlockFi accused the collapsed crypto hedge fund Three Arrows of using fraud to borrow money from the lender and isn’t entitled to potential repayment.

Monday’s filings advance an ongoing court fight that could impact how much creditors of BlockFi, FTX and Three Arrows are repaid in the companies’ separate bankruptcy proceedings.

BlockFi, which is liquidating, has said litigation with FTX, Three Arrows and a few other crypto firms could affect the amount its customers are repaid by US$1 billion.

FTX said in July that it’s primarily seeking to recover loan repayments and collateral pledged to BlockFi before Bankman-Fried’s platform crumbled into bankruptcy in November. Bankman-Fried has pleaded not guilty to fraud charges and is scheduled to go to trial in October.

Bankruptcy law gives failed companies the ability to unwind transactions that benefited particular creditors at the expense of others in the few months before filing Chapter 11. FTX has said it’s seeking to recover loan repayments made by its trading firm Alameda Research, roughly US$90 million in withdrawals by BlockFi from FTX.com and other preferential payments.

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BlockFi creditors previously accused management of ignoring red flags before lending to FTX, but settled with the company last month to advance a debt repayment plan. Independent BlockFi directors determined the company had little reason to worry about FTX before it collapsed amid allegations of fraud.

Three Arrows’ liquidators said last month that BlockFi owes more than US$220 million, making it one of its most significant creditors. The hedge fund said BlockFi’s attempts to reduce those claims could violate the bankruptcy pause Three Arrows was afforded after it sought Chapter 15 protection, a type of bankruptcy that protects international firms’ US assets.

A representative of Three Arrows’ liquidators and an FTX spokesperson declined to comment. BLOOMBERG