BlockFi not FTX, says company's financial adviser
Debtor's goal: Provide clients as close to full recovery as possible.
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Cryptocurrency lender BlockFi is blaming FTX for its bankruptcy while also emphasizing that it is very different from the company founded by Sam Bankman-Fried.
"Although the debtors’ exposure to FTX is a major cause of this bankruptcy filing, the debtors do not face the myriad issues apparently facing FTX, quite the opposite," said Mark Renzi, managing director of Berkeley Research Group, the financial adviser to BlockFi.
In a court filing, Renzi said that thus far he has found the BlockFi management team to be knowledgeable, experienced, diligent and responsible stewards of their stakeholders’ assets, with each member caring deeply about "doing the right thing and maximizing value for clients and stakeholders."
"To date, I have not found any failure of corporate controls or systems integrity, and I have found BlockFi’s financial information to be trustworthy," he said.
BlockFi app and credit card from BlockFi website (BlockFi website)
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I have found the BlockFi management team to be knowledgeable and experienced, diligent, responsible stewards of their stakeholders’ assets
Renzi’s comments are in sharp contrast to statements made by John Ray III, the CEO of FTX Trading who took over from Bankman-Fried.
"Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here. From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented."
As a result of BlockFi’s corporate governance and risk management processes, Renzi says the company is well-positioned to move forward despite the fact that 2022 has been a uniquely terrible year for the cryptocurrency industry.
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"BlockFi intends to swiftly bring these chapter 11 cases to an appropriate conclusion and restore liquidity to its firm, preserving and maximizing value for clients," Renzi said. "The debtors’ goal [is] to provide clients [with] as close to a full recovery as possible."
Renzi’s declaration emphasized that FTX will play a big part in its bankruptcy plans. He cautioned that a full recovery would require, among other things, that counterparties and third-party custodians such as FTX meet their contractual and legal obligations.
"While the Debtors are hopeful, the full extent of the fallout from FTX’s collapse remains to be determined," said Renzi.
Deal with FTX
Renzi’s declaration emphasized that FTX will play a big part in its bankruptcy plans. (Reuters/Dado Ruvic/Illustration/File / Reuters Photos)
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BlockFi entered into an agreement on June 30 with FTX under which FTX would loan BlockFi up to $400 million, along with an option to buy BlockFi for as much as $240 million.
The deal gave BlockFi substantial exposure to FTX’s troubles. BlockFi also made loans to FTX’s sister company, Alameda Research, and had cryptocurrencies on FTX’s platform that "became trapped" due to FTX’s bankruptcy filing, which froze the firm’s assets.
BlockFi’s bankruptcy petition shows it owes $275 million to FTX.
"This exposure has created a liquidity crisis," Renzi said.
BlockFi is seeking an expedited hearing on its first day motions, which it wants scheduled for Tuesday. So-called first-day motions give a company power to operate in bankruptcy. The motions include court authorization to use existing cash management systems and bank accounts along with paying employees, taxes and fees.
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As of the filing date, BlockFi and its non-debtor affiliates have approximately 292 employees and 82 independent contractors. Approximately two-thirds of these individuals received Worker Adjustment Retraining Notification ("WARN") notices before the Chapter 11 cases as part of a liquidity-preserving reduction in force.
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BlockFi and eight affiliates filed for Chapter 11 bankruptcy Monday in New Jersey.