BlockFi, a bankrupt cryptocurrency lender, is suing Sam Bankman-Fried to collect Robinhood shares that the FTX founder reportedly offered as collateral just days before his exchange went bankrupt.
The complaint was filed mere hours after BlockFi declared bankruptcy due to a “serious liquidity shortage” caused by the demise of Bankman-FTX Fried's exchange.
BlockFi's complaint, filed in the same New Jersey court where it launched bankruptcy proceedings, sought undisclosed collateral from Bankman-Emergent Fried's Fidelity Technologies vehicle.
According to loan documents obtained by the Financial Times, the collateral is Bankman-interest Fried's in Robinhood, an online trading startup. He purchased 7.6% of Robinhood earlier this year.
The disagreement highlights the intimate connections between crypto ventures and the complicated untangling process that is underway as bankruptcy lawyers wade through the wreckage of FTX and other businesses affected by its failure.
This year, the industry has seen a succession of rippling insolvencies as a huge confidence crisis has swept crypto markets, sending tokens such as bitcoin and ethereum to their lowest price since 2020.
In June, Bankman-Fried positioned himself as a savior for struggling crypto enterprises, providing emergency funding for BlockFi in exchange for an opportunity to buy the lender at a fire-sale price.
However, BlockFi stated on Monday that its connection to Bankman-Fried was eventually its undoing, stating that his Alameda Research trading firm had defaulted on $680 million in collateralised loans in early November.
According to BlockFi's complaint, on November 9, it and Emergent agreed to guarantee the payment obligations of an unnamed borrower by pledging certain “common stock” as security. The borrower is identified as Alameda in legal letters involved in the case.
The issue reflects the immense pressure on Bankman-Fried, whose paper fortune vanished practically suddenly when his $32 billion FTX business collapsed. Authorities in the United States and the Bahamas, where FTX was based, have initiated investigations.
Bankman-Fried had been trying to raise billions of dollars in new funding in the days leading up to FTX's bankruptcy declaration on November 11. His Robinhood shares were mentioned as an asset in spreadsheets he provided with investors.
The Financial Times reported earlier in November that Bankman-Fried had been covertly attempting to sell Robinhood shares via the secure messaging app Signal in the days preceding up to FTX's bankruptcy declaration on November 11.
According to two people acquainted with the situation, Bankman-Fried continued to discuss the sale of his Robinhood shares even after entering into the pledge agreement.
Bankman-Fried was still negotiating those deals on the evening of November 10, according to texts obtained by the FT.
BlockFi also cited ED&F Man Capital Markets as Emergent's broker in the lawsuit, stating the London-based brokerage “refused to release the Collateral to BlockFi.”
According to legal correspondence submitted with the complaint, ED&F Man refused to transfer the assets “without an order from the Bankruptcy Court” in the FTX proceedings in Delaware.
BlockFi and Bankman-Fried did not respond to demands for comment right away. Beyond the communication contained in the documents, ED&F Man refuses to comment.
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