BlockFi Sues Sam Bankman-Fried over Robinhood Stock Collaterals

BlockFi, which filed for bankruptcy protection on Monday, is taking Sam Bankman-Fried’s Emergent Fidelity Technologies to court for seizing Robinhood shares (HOOD) pledged to the crypto lending platform as collateral.

The lawsuit came only hours after BlockFi filed for bankruptcy proceedings. It filed the lawsuit in the United States Bankruptcy Court for the District of New Jersey, which is also overseeing the bankruptcy proceedings.

According to the court documents, BlockFi and Emergent Fidelity Technologies agreed on November 9 to guarantee the payment of an unnamed borrower by pledging unnamed common stocks. A Financial Times report revealed that the borrower from BlockFi is Bankman-Fried’s Alameda Research, and the pledged stocks are from Robinhood.

Bankman-Fried acquired a 7.6 percent stake in Robinhood earlier this year for $648 million, with rumors of him purchasing a controlling stake in the online broker. However, it was officially denied, saying there were 'no active' merger or acquisition talks.

The loan using HOOD as collateral was taken days before the collapse of FTX. The media report highlighted that Bankman-Fried was to sell his Robinhood stakes even after collateralizing them with BlockFi.

The Implications of the Collapse of FTX

BlockFi initially denied any effect on its business after the collapse of FTX. However, the platform suspended all activities, including withdrawals, within only a couple of days, hinting at its exposure to FTX.

The business vulnerabilities of BlockFi were exposed on Monday when the company filed for bankruptcy, citing “a severe liquidity crunch” triggered by the failure of FTX. Further, in early November, Alameda Research defaulted on $680 million collateralized loans from BlockFi.

Meanwhile, BlockFi received a $400 million credit facility from FTX US last July, giving the exchange the right to acquire the lending platform. The terms of the acquisition deal would depend on specific performance terms.

BlockFi detailed in the bankruptcy filing that it has assets between $1 billion and $10 billion and liabilities in a similar range. The company has over 100,000 creditors.