BlockFi creditors branded BlockFi’s claim that it was a victim of FTX and Alameda a false case statement and blamed poor management decisions and restructuring agents for the company’s failures. The committee of creditors noted that in the days following the FTX crash, BlockFi converted approximately $240 million in cryptocurrency to fiat currency as the cryptocurrency market plummeted, causing significant financial losses and potential tax issues for customers, and that BlockFi subsequently transferred Proceeds and an additional $10 million were deposited into Silicon Valley Bank (SVB), which has since collapsed.
The creditors' committee said SVB's depository institutions were not strong enough to meet the protections of the Bankruptcy Code, prompting U.S. trustees to object to keeping estate funds there. An arrangement was eventually reached whereby SVB would provide sufficient collateral (in the form of bonds) should the bank fail. But no one at BlockFi (including the restructuring team) bothered to follow through, and no one paid any deposits.
Additionally, BlockFi spent $22.5 million of client funds to purchase $30 million worth of insurance for its directors and executives.
The creditors' committee said SVB's depository institutions were not strong enough to meet the protections of the Bankruptcy Code, prompting U.S. trustees to object to keeping estate funds there. An arrangement was eventually reached whereby SVB would provide sufficient collateral (in the form of bonds) should the bank fail. But no one at BlockFi (including the restructuring team) bothered to follow through, and no one paid any deposits.
Additionally, BlockFi spent $22.5 million of client funds to purchase $30 million worth of insurance for its directors and executives.