FTX and BlockFi Granted Court Approval to Resume Claims Settlement

FTX and BlockFi have received the approval to resume proceedings for the negotiation of claims settlement in the aftermath of BlockFi's bankruptcy filing last year. This step allows FTX to present its arguments, paving the way for a potential settlement between the two firms.

BlockFi, a digital asset lender, filed for bankruptcy in November 2022, citing the effects of FTX's sudden collapse as a significant factor. BlockFi has approximately $355 million on FTX's platform and an additional $671 million owed by FTX's sister company, Alameda Research, a quantitative trading firm, Coindesk reported.

US bankruptcy judge Michael Kaplan modified the court orders on November 13, allowing FTX's debtors to engage in discussions regarding the claims settlement. This permitted the crypto exchange to present its defense, counterclaims, and setoffs concerning BlockFi's claims in the ongoing bankruptcy proceedings.

BlockFi Pursues Recovery Following Bankruptcy

Recently, in the case that found FTX's Former CEO guilty of fraud and money laundering charges, BlockFi's CEO, Zac Prince, testified. Prince testified against Sam Bankman-Fried, highlighting how BlockFi's bankruptcy directly resulted from its association with FTX and Alameda Research.

In September, BlockFi's creditors approved a bankruptcy restructuring plan. This plan aimed to recoup the losses from the fallout of FTX and the collapse of crypto hedge fund Three Arrows Capital. Prince disclosed to the jury that BlockFi's association with FTX allegedly led to losses exceeding "a little over a billion dollars."

He pointed to loan agreements with Alameda Research, which started in 2020 and 2021. The crypto lender had extended up to USD $1 billion to the firm by May 2022. Subsequently, the quantitative trading firm repaid the initial loan in full, and BlockFi extended new loans amounting to USD $850 million.

Links with FTX and Alameda Research

BlockFi's financial troubles escalated with the collapse of the Terra Luna crypto ecosystem, which led to significant losses. BlockFi sought repayment of its loans from Alameda Research, initiating a process that eventually unfolded into a billion-dollar loss.

The digital asset lender offered interest-bearing crypto-lending products prior to filing for bankruptcy last year. An accidental leak of the firm's data showed the depth of its financial troubles. This affected BlockFi's user base of 662,427, with the majority having balances below $1,000.

Last year, the firm sued Bankman-Fried's Emergent Fidelity Technologies. This lawsuit, filed in the United States Bankruptcy Court for the District of New Jersey, involved the seizure of Robinhood shares pledged as collateral to BlockFi.