The U.S. Securities and Exchange Commission (SEC) has joined bankrupt crypto firms FTX and hedge fund Three Arrows Capital (3AC) in opposing BlockFi’s bankruptcy plans, according to court filings submitted on July 5.
In its filing, the SEC argued that BlockFi’s proposed plans contained ambiguous and broad clauses that lacked sufficient information to assist other stakeholders. As a result, the regulator has requested the court to halt BlockFi’s plan until the company addresses the raised concerns. The SEC stated, “The Debtors need to provide more detailed information about such broad releases to permit affected stakeholders to make an informed decision with respect to the Plan.”
Additionally, the financial regulator noted that it holds a $30 million claim against the bankrupt crypto firm. Last year, BlockFi was fined $50 million by the SEC for its failure to register its lending product. The lender also agreed to pay $50 million in fines to settle similar charges in 32 states. FTX, the bankrupt exchange, stated that its relationship with BlockFi is “multifaceted,” and the lender’s proposal represents an “abuse of the planning process.”
In 2022, FTX extended a $250 million revolving credit facility to BlockFi, which has now become a legal issue amid the bankruptcy proceedings of both firms. FTX further highlighted the substantial collateral and payments made by Alameda to BlockFi, amounting to hundreds of millions of dollars. FTX objected to any attempt by BlockFi to recharacterize or subordinate these claims, adding that “the BlockFi Debtors are pointing fingers at everyone but their prepetition leadership, for whom they now seek releases for prepetition actions and omissions in the Liquidating Plan.”
In its filing, 3AC argued that any attempt to subordinate its claims against BlockFi would violate the automatic stay, as it has its own bankruptcy case before a U.S. court. The hedge fund also stated that BlockFi’s proposed plan does not provide the Joint Liquidators with a “meaningful opportunity to object to subordination” of its claims against the bankrupt lender. With claims against BlockFi exceeding $220 million, 3AC stands as one of the significant creditors of the bankrupt lender.
FTX and 3AC echo the SEC’s criticism, asserting that BlockFi failed to provide sufficient information for stakeholders to evaluate the feasibility of their plans.