The collapse of the FTX crypto exchange has spread to crypto-firm BlockFi, as it has now filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the District of New Jersey.
The filing notes the company has over 100,000 creditors, and liabilities and assets somewhere between $1 billion and $10 billion.
The company included a $275 million loan to FTX US, the American division of the FTX exchange, which has itself filed for bankruptcy.
BlockFi also had a Bahamian subsidiary, which has similarly filed for bankruptcy in the Bahamas at the same time.
BlockFi’s largest disclosed client, according to the filing, had a balance of nearly $28 million with the firm.
The financial advisor to BlockFi, Berkeley Research Group, had spokesman Mark Renzi say in a press statement, “BlockFi looks forward to a transparent process that achieves the best outcome for all clients and other stakeholders.”
BlockFi had begun to experience issues with liquidity following the implosion of Crypto-lender Three Arrows Capital. As with many of these exchanges, their problems arose from the fact they would offer interest-bearing custodial services, where users would allow the firm to lend their funds to others, as an investment, and pass some of the returns back to the asset holder. These firms lent funds to each other, and as one experienced liquidity issues, and filed for bankruptcy, the loss of client funds would create liquidity issues at the next firm, and the contagion would spread.
Based out of Jersey City, New Jersey, BlockFi had already publicly announced it had significant exposure to the FTX debacle, saying, “We do have significant exposure to FTX and associated corporate entities that encompasses obligations owed to us by Alameda, assets held at FTX.com, and undrawn amounts from our credit line with FTX.US.”
Following the FTX bankruptcy, the company had begun talking with restructuring experts.
When BlockFi had first experienced liquidity issues in July, FTX had offered to come to its rescue with a $400 million revolving credit line and an offer to buy the company. BlockFi was last valued at $4.8 billion according to Pitchbook.
On November 11th, FTX filed for Chapter 11 bankruptcy in the US, and the liquidity issues have swiftly spread from company to company. Crypto-lending firm Genesis has ceased customer withdrawals due to liquidity issues. Crypto exchange Gemini, founded by the Winklevoss twins, was forced to tell its customers that the interest-bearing service it had partnered with Genesis on, could no longer allow withdrawals.
About 130 other companies are now drawn into FTX’s bankruptcy proceedings, including Bankman-Fried’s crypto trading firm, Alameda research, which it is rumored was the recipient of illicitly transferred client-funds from FTX, which were used to cover loans which had come due.
John Ray, the new CEO of FTX has said in one filing that, “in his 40 years of legal and restructuring experience,” he’s never seen “such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.”
Previously Ray served as the CEO of Enron, following the notorious collapse of the energy giant.
FTX’s valuation went from $32 billion to bankrupt in a matter of days once the collapse occurred. Rival exchange Binance offered to swoop in and buy the exchange, however after due diligence turned up misappropriations of client funds, it backed out, noting pending regulator actions and potential criminal investigations. Ray has noted, a “substantial portion” of the assets FTX was in custody of may be “missing or stolen.” It has been reported FTX has over 1 million creditors.
