blockfi

Circle and BlockFi questioned on banking with SVB by Warren and AOC

Circle and BlockFi executives were questioned after the lawmakers accused Silicon Valley Bank of “coddling” and giving “white glove” treatment to its largest depositors.

Executives at the stablecoin issuer Circle and the bankrupt cryptocurrency lender BlockFi have been questioned by two members of Congress investigating the so-called “mutual backscratching arrangements” alleged to have taken place with the now-failed Silicon Valley Bank.

On April 9, letters from Senator Elizabeth Warren and Representative Alexandria Ocasio-Cortez (AOC) were sent to Circle, BlockFi and 12 other non-crypto tech firms asking a series of questions on each firm’s relationship with SVB.

The lawmakers stated that more needs to be known about SVB’s reported “coddling” and “white glove” treatment towards its largest depositors in order to understand if these firms played a role in SVB’s collapse.

Jeremy Allaire and Zac Prince, the respective chief executives of Circle and BlockFi, were questioned on the length of their financial relationships with SVB and t amounts deposited with the bank, along with what “agreements” were made between their firms.

Senator Elizabeth Warren and Representative Alexandra Ocasio-Cortez’s letter to Circle CEO Jeremy Allaire. Source: U.S. Senate

In addition, the pair wanted to know if SVB offered “perks” such as low-interest rate mortgages or SVB-sponsored “ski trips, conferences and fancy dinners.”

“Congress, bank regulators, and the public are owed an explanation for the bank’s hyper-reliance on tech industry firms and investors,” Warren and AOC wrote.

Related: Polls suggest Elizabeth Warren’s anti-crypto army strategy won’t pay off

They added the extent of SVB’s depositors in the tech industry resulted “in an abnormally high percentage of deposits” not insured by the Federal Deposit Insurance Corporation and questioned the executives on “the role that companies like yours might have played in precipitating the $42 billion single-day-run on SVB.”

“Obtaining information on these factors is important for understanding how SVB failed and how to prevent the next failure,” they added.

Warren and AOC said they believe it may explain why some customers, such as Circle, placed extremely large amounts of uninsured deposits at SVB.

Shortly after SVB collapsed, Circle disclosed that it had $3.3 billion tied up at SVB, while BlockFi was found to have $227 million in uninsured deposits with the bank.

Magazine: Unstablecoins: Depegging, bank runs and other risks loom

BlockFi to provide over $100K in refunds to California clients

At least 111 BlockFi borrowers had continued repaying loans between Nov. 11 and Nov. 22, even though they didn’t need to, according to court documents.

Bankrupt crypto lender BlockFi has agreed to refund more than $100,000 to California customers that had continued to repay loans even after a trading halt on Nov. 10 last year. 

In a March 27 statement, California’s Department of Financial Protection and Innovation said that its investigation had discovered that at least 111 borrowers in California made roughly $103,471 in loan repayments between Nov. 11 and Nov. 22.

The financial watchdog claimed that BlockFi failed to “provide timely notification to borrowers that they could stop repaying their BlockFi loans.”

The DFPI claims that borrowers were not notified until Nov. 22 that they could stop repaying their BlockFi Loans “until further notice.”

According to documents, BlockFi requested permission from the bankruptcy court to return these payments to the borrowers in a motion filed with the court on Feb. 24.

The refunds will be able to go ahead if the motion is approved, with a hearing scheduled for April 19.

Excerpt from the DFPI agreement filed in court. Source: DFPI

Meanwhile, the DFPI said BlockFi has agreed to an ”interim suspension” of its California Financing Law (CFL) license while “the bankruptcy and revocation actions are pending.”

“If this motion is granted BlockFi agrees to direct the Servicer to timely return borrowers’ payments, including interest and late fees and all funds paid following the November 10th platform pause,” according to the DFPI documents. 

Unless otherwise ruled by the bankruptcy court, the regulator said BlockFi’s agreement to the interim suspension means it will continue to direct its agents to pause the collection of repayments for California customers on loans, interest payments and “not charge, levy, or assess any late fees associated with any payments, including at maturity.”

BlockFi has also agreed to continue not reporting to credit agencies that loans from California residents have become delinquent or defaulted on or after Nov. 11, and will not take “any action that may harm California residents’ credit scores on such loans.”

Related: BlockFi in no immediate danger, despite Silicon Valley Bank exposure: Report

According to the DFPI, Commissioner Clothilde V. Hewlett suspended BlockFi’s lending license for 30 days on Nov. 11 and moved to revoke BlockFi’s CFL license on Dec. 15,.

BlockFi halted client withdrawals and requested clients not to deposit to BlockFi wallets or Interest Accounts on Nov. 10, citing a lack of clarity around the collapse of FTX.

By Nov. 28, BlockFi filed for Chapter 11 bankruptcy for the company and its eight subsidiaries. BlockFi International filed for bankruptcy with the Supreme Court of Bermuda on the same day.

Filing shows BlockFi has uninsured $227M in Silicon Valley Bank MMMF

BlockFi’s capital allocated to the money market mutual fund is not FDIC insured, however the fund doesn’t appear to be managed by Silicon Valley Bank.

According to a new bankruptcy filing, defunct crypto lender BlockFi has $227 million worth of uninsured funds allocated to a money market mutual fund (MMMF) offered by troubled Silicon Valley Bank (SVB).

SVB — one of the U.S’s largest banks and key partners to venture-backed companies — was shut down by the California Department of Financial Protection and Innovation (DFPI) on March 10, with no specifics offered at the time of the closure.

The move adds to the recent Silvergate bankruptcy carnage which has seen crypto markets tumble since the crypto-friendly bank’s financial woes came to light at the beginning of March.

Looking at the ongoing BlockFi bankruptcy case, a March 10 filing indicates that the firm has $227 million worth of capital in an MMMF offered by SVB.

Notably, the filing highlights a balance summary statement from SVB which states that BlockFi’s investment is not a Federal Deposit Insurance Corporation (FDIC) insured deposit, not insured by any federal government agency and “not guaranteed by the bank.”

The FDIC’s federal deposit insurance covers up to $250,000 per depositor, however it does not cover the scope of money market funds.

A money market mutual fund invests in highly liquid near-term instruments such as cash, cash equivalents and high-quality short-term debt instruments, and is regulated by the U.S. Securities and Exchange Commission.

Related: $920B is the number to watch now that crypto’s trillion-dollar total market cap is gone

Investors are issued fund shares in exchange for their capital, and as such, BlockFi’s funds may not be at risk despite SVB’s troubles.

SVB offered several mutual fund investment services, but according to its website it doesn’t appear to have managed any of the funds itself. The firm lists big names such as BlackRock, Morgan Stanley and Western Asset Management as the fund managers.

As such, the risk to BlockFi in this instance is most likely hindered by the fund’s performance, and not anything related to SVB’s financial woes.

One firm that looks to be directly impacted by the SVB closure — and the Silvergate bankruptcy — is USD Coin (USDC) issuers Circle.

According to the company’s latest audit report, as of Jan. 31, $8.6 billion, or roughly 20% of its reserves, were held up in several U.S. financial institutions including SVB, Silvrgate and Bank of New York Mellon.

The exact value held up in SVB and Silvergate is unclear, however Circle issued a statement via Twitter on March 10 noting that the firm and USDC will continue to “operate normally” as it awaits “clarity on how the FDIC receivership of SVB will impact its depositors.”

At the time of writing, USDC has dropped below the $1 peg to sit at $0.98 as per CoinGecko data.

Filing shows BlockFi has uninsured $227M in Silicon Valley Bank fund

BlockFi’s capital allocated to the money market mutual fund is not FDIC insured; however, the fund doesn’t appear to be managed by Silicon Valley Bank.

According to a new bankruptcy filing, defunct crypto lender BlockFi has $227 million worth of uninsured funds allocated to a money market mutual fund (MMMF) offered by the troubled Silicon Valley Bank (SVB).

SVB — one of the Unites States’ largest banks and a key partner to venture-backed companies — was shut down by the California Department of Financial Protection and Innovation on March 10, with no specifics offered at the time of the closure.

The move adds to the recent Silvergate bankruptcy carnage, which has seen crypto markets tumble since the crypto-friendly bank’s financial woes came to light at the beginning of March.

Looking at the ongoing BlockFi bankruptcy case, a March 10 filing indicates that the firm has $227 million worth of capital in an MMMF offered by SVB.

Notably, the filing highlights a balance summary statement from SVB, which states that BlockFi’s investment is not a Federal Deposit Insurance Corporation (FDIC) insured deposit, not insured by any federal government agency and “not guaranteed by the bank.”

The FDIC’s federal deposit insurance covers up to $250,000 per depositor but does not cover the scope of money market funds.

A money market mutual fund invests in highly liquid near-term instruments such as cash, cash equivalents and high-quality short-term debt instruments, and is regulated by the U.S. Securities and Exchange Commission.

Related: $920B is the number to watch now that crypto’s trillion-dollar total market cap is gone

Investors are issued fund shares in exchange for their capital, so BlockFi’s funds may not be at risk despite SVB’s troubles.

SVB offered several mutual fund investment services, but according to its website, it doesn’t appear to have managed any of the funds. The firm lists big names such as BlackRock, Morgan Stanley and Western Asset Management as the fund managers.

As such, the risk to BlockFi in this instance is most likely the fund’s performance — not anything related to SVB’s financial woes.

One firm that looks to be directly impacted by the SVB closure — and the Silvergate bankruptcy — is USD Coin (USDC) issuers Circle.

According to the company’s latest audit report, as of Jan. 31, $8.6 billion, or roughly 20% of its reserves, were held in several U.S. financial institutions, including SVB, Silvergate Bank and Bank of New York Mellon.

The exact value held in SVB and Silvergate is unclear; however, Circle issued a statement via Twitter on March 10, noting that the firm and USDC will continue to “operate normally” as it awaits “clarity on how the FDIC receivership of SVB will impact its depositors.”

At the time of writing, USDC has dropped below the $1 peg to sit at $0.98, as per CoinGecko data.

BlockFi execs, Gemini named in lawsuit by disgruntled investor

Gemini is accused of providing BlockFi with custodial services and misleading information to help BlockFi market its alleged unregistered securities.

An investor with nearly $2 million worth of funds frozen in bankrupt cryptocurrency lender BlockFi has filed a class-action complaint against its founders, two directors and crypto exchange Gemini.

In a Feb. 28 complaint filed in the U.S. District Court for the District of New Jersey, investor Trey Greene accused the defendants of numerous wrongdoings, including violating the consumer fraud and exchange acts and breaching its fiduciary duties, as well as offering and selling unregistered securities.

“The unregistered securities sold by the BFI [BlockFi] Defendants on behalf of BlockFi were marketed and sold via a steady stream of misrepresentations and material omissions by Prince and Marquez over several years and through intermittent misrepresentations by Defendant Gemini.”

Greene claims he invested over $1.5 million in interest accounts that are alleged to be unregistered securities, accruing over $400,000 in capital gains and earned interest that was re-invested.

He is currently unable to withdraw the funds, however, after BlockFi froze all withdrawals on Nov. 10 — the same day that FTX filed for bankruptcy.

Filing of the proposed class-action lawsuit. Source: Bloomberg Law

Greene further claims that he was induced into buying the “unregistered securities” by misrepresentations from BlockFi founders Zac Prince and Flori Marquez that the offerings were comparable to federally-insured bank products.

While the Securities and Exchange Commission charged BlockFi with “failing to register the offers and sales of its retail crypto lending product” on Feb. 14, the filing claims the exchange “admitted its [interest] accounts were unregistered securities” during the proceedings, which resulted in a $50 million settlement on Feb. 15.

Related: FTX ex-director Nishad Singh pleads guilty to fraud charges

Tyler Winkevoss’ Gemini previously held custody over BlockFi’s clients’ crypto holdings through its custodial services, and is alleged to have misrepresented how accessible these funds were to customers.

“Gemini knew of, and acquiesced in, the materially false and misleading statements about the status the safety and accessibility of Plaintiff’s and class members’ assets at Gemini and about the risks of loss. Gemini supplied materially false and misleading information to BlockFi for use in marketing the BIAs [BlockFi interest accounts].”

Gemini is alleged to have breached the exchange act but was not included in the other allegations.

Greene is seeking damages for each of the alleged counts, including “treble damages” for violations of the consumer fraud act, the costs of his lawyers to be covered, a full refund of all funds acquired by the defendants and accrued interest, as well as a judgment preventing similar violations of the consumer fraud act.

Those represented in the class action are any stockholders of BlockFi that purchased their BlockFi unregistered BlockFi Interest Accounts between March 4, 2019 and Nov. 10, 2022

The defendants will be served with a summons, and must respond to the complaint within 21 days of receiving it or be required to pay the full amount demanded by Greene.

Cointelegraph has reached out to Gemini and BlockFi but did not receive a response by the time of publication.

BlockFi gets court nod to sell crypto mining assets

BlockFi reportedly wants to get bids in as quickly as possible, to make the most of the current market conditions.

Bankrupt crypto lender BlockFi has been granted court approval to sell off its crypto mining equipment as part of ongoing efforts to repay its creditors.

A court order filed on Jan. 30 in the United States Bankruptcy Court for the District of New Jersey granted approval for BlockFi to sell the assets, saying doing so was “fair, reasonable and appropriate under the circumstances.”

The court acknowledged that the sale of the assets is designed to maximize the recovery and “realizable value” of the company.

With the court giving BlockFi the green light, more bids are now expected to roll in for the crypto lender’s crypto mining assets.

The document stated “all qualified bids” must be sent to the parties specified in the bidding procedures by the Feb. 20 deadline.

The bids must be filed with the court by March 2 and the creditor’s representatives have until March 16 to object to the sale of the assets to the qualified bidders.

To participate in the bidding process, potential bidders must deliver a written proposal to each of the “co-counsel to the debtors.”

The proposal must include the proposed purchase price as well as the specific assets that the potential bidder is interested in acquiring and how they will finance the assets.

According to a Jan. 31 Bloomberg report, BlockFi’s tight deadline is an effort to get bids as quickly as possible to make the most of the current market conditions, which have seen most cryptocurrencies rally after months of sideways price action.

The report said that BlockFi’s lawyer, Francis Petrie, has told the court that the company has already received interest from bidders for various assets and expects more to come.

Related: Crypto Biz: A peek into BlockFi’s secret financials (it’s not pretty)

On Jan. 24, it was reported that BlockFi had been selling off $160 million in loans backed by approximately 68,000 Bitcoin (BTC) mining machines as part of the bankruptcy proceedings.

BlockFi started the process of selling off the loans last year, with some having already defaulted given the crypto market conditions.

Breaking: BlockFi uncensored financials reportedly shows $1.2B FTX exposure

The documents previously censored financial information relating to FTX and Alameda Research, but uncensored copies were released by mistake.

Bankrupt crypto lending firm BlockFi has reportedly uploaded uncensored financials by mistake, revealing $1.2 billion in assets tied up with bankrupt exchange FTX and irelated trading firm Alameda Research.

According to a Jan. 24 report from CNBC, the unredacted filings show that as of Jan. 14, BlockFi had $415.9 million worth of assets linked to FTX and a whopping $831.3 million in loans to Alameda.

The previously censored financials were leaked as part of a presentation put together by M3 Partners, which is an advisor to the creditor committee and has reportedly admitted the filing was uploaded in error.

The correctly redacted Nov. 24 declaration relates to the creditor committee’s objection that BlockFi is seeking to pay key employees $12.3 million in retention payments despite their limited operations and assets.

According to a subsequent filing, the redacted portions include “trade secret[s] or confidential research, development, or commercial information.”

On Nov. 29, during the first-day hearing of its bankruptcy proceedings, BlockFi’s lawyers said the figures were $355 million stuck on FTX and $680 in loans to Alameda, but the value of the funds has increased with the price of Bitcoin (BTC) since then.

While BlockFi has attempted to separate itself from FTX and Alameda throughout its bankruptcy proceedings the state of financial obligations between the firms is complicated.

On July 1, FTX US — FTX’s U.S. arm — extended a $400 million line of credit to BlockFi after the lender was caught up in the contagion caused by the collapse of Terra’s algorithmic stablecoin on May 10.

The loan is set to expire on June 30, 2027, and has an interest rate of 5%.

The deal also provided FTX US with the option to acquire BlockFi for “a variable price of up to $240 million based on performance triggers.”

Related: BlockFi to sell $160M in Bitcoin miner-backed loans: Report

On Nov. 28, BlockFi also sued a holding company of Sam Bankman-Fried’s, Emergent Fidelity Technologies, seeking collateral that the firm had pledged to pay on Nov. 9, including shares in the online brokerage Robinhood.

BlockFi filed for Chapter 11 bankruptcy on Nov. 28, citing the collapse of FTX just weeks earlier as the cause of its financial troubles. 

Cointelegraph contacted BlockFi and M3 Partners for comment but did not immediately receive a response.

BlockFi to sell $160M in Bitcoin miner-backed loans: Report

The deadline for bidders to submit offers for the Bitcoin-machine-backed loans is Jan. 24.

Bankrupt crypto lending firm BlockFi reportedly has plans to sell off $160 million in loans backed by around 68,000 Bitcoin mining machines as part of bankruptcy proceedings.

In a Bloomberg report on Jan. 24, two people “familiar with the matter” claimed that BlockFi started the process of selling off the loans last year.

The crypto lender filed for Chapter 11 bankruptcy in November, citing its significant exposure to the now-defunct crypto exchange FTX for its downfall.

However, some of these loans have already defaulted since then and could be undercollateralized given the decline in the price of Bitcoin mining equipment, according to the sources, adding the last day for bidders to submit offers for the loans is Jan. 24.

In comments to Cointelegraph, crypto lawyer Harrison Dell — director of Australian law firm Cadena Legal — explained that if Bitcoin mining equipment used as collateral is worth less than the value of the loans, the loans are “not worth their paper value anymore to BlockFi.”

Dell said that the people bidding for the debts are likely to be debt collection businesses buying for “cents on the dollar.”

He added that selling the debt is likely “all that the administrators” for BlockFi can salvage for these assets.

Dell also suggested that this is just the beginning of what’s to come for the crypto industry. He noted:

“This is just the start of the asset sales from BlockFi and other crypto firms in Chapter 11 bankruptcy in the U.S.”

Cointelegraph reached out to BlockFi for comment but did not receive a response by the time of publication.

BlockFi’s attempt to liquidate its loans is likely part of efforts to pay off its creditors, which according to its bankruptcy filing in November, number over 100,000.

At the time of its bankruptcy, it was reported that BlockFi sold $239 million of its own cryptocurrency assets to cover the bankruptcy expenses and warned approximately 70% of its staff that they would lose their jobs.

Related: BlockFi bankruptcy filing triggers a wide range of community reactions

Earlier this week, BlockFi petitioned the court in a Jan. 23 declaration to release funds to allow bonuses for key employees in a bid to retain them amid the Chapter 11 bankruptcy proceedings.

BlockFi’s chief people officer Megan Crowell told the court that without financial incentives, it’s unlikely the company will be able to retain its employees.

Crowell said it is highly likely many staff will leave the company without competitive compensation, noting that it would add further financial impact to the company down the road.

BlockFi exec argues bankruptcy court should approve bonuses to retain talent

According to Megan Crowell, losing certain employees could “severely [limit] the debtors’ options“ amid bankruptcy proceedings.

Megan Crowell, the chief people officer at crypto lending firm BlockFi, has petitioned a court to allow bonuses for “key employees” amid Chapter 11 bankruptcy proceedings.

In a Jan. 23 declaration for United State Bankruptcy Court in the District of New Jersey, Crowell said that without giving certain financial incentives, BlockFi might be unable to retain employees in a “highly competitive” crypto industry. According to the BlockFi executive, many staff were “highly likely to leave the company” during the Chapter 11 process without “competitive compensation,” potentially adding to costs down the road.

“The war for talent remains active, and the Participants have many opportunities inside and outside the cryptocurrency sector,” said Crowell. “Individuals with cryptocurrency experience are attractive to employers in the finance, technology, and payment platform industries broadly, among others, especially as these industries adapt their products and services to incorporate cryptocurrency and or related technologies.”

She added:

“In the event additional Participants resign, I believe that the Debtors would struggle to adequately source candidates who could operate the BlockFi platform effectively, severely limiting the Debtors’ options in these chapter 11 cases. Moreover, hiring new employees would require the Debtors to incur significant operational and financial costs.”

BlockFi filed for bankruptcy on Nov. 28, saying at the time the firm had roughly $257 million on hand. It filed a motion to “establish a Key Employee Retention Plan to ensure the company retains trained internal resources for business-critical functions” as the works did not qualify for severance. According to Crowell, the proposed plan would offer employees bonuses of 20-50% of their salaries should they remain at the firm as of Jan. 31.

Related: BlockFi bankruptcy filing triggers a wide range of community reactions

Crowell reported that certain “critical” employees had already accepted offers at Google, Block, and Walmart following the bankruptcy filing in November, in some cases “for compensation significantly above their current compensation.” Her LinkedIn showed she joined BlockFi in July 2019, working in various roles related to recruiting talent.

Many crypto firms including FTX, Celsius Network, Genesis, and Voyager Digital filed for Chapter 11 bankruptcy in the last year, with many users reporting losses totaling in the millions of dollars.

BlockFi plans to file assets and liabilities for bankruptcy case on Jan. 11

The company claimed that no members of the BlockFi management team had withdrawn any crypto from the platform since October.

Crypto lending firm BlockFi has announced it will disclose information on its assets and liabilities as well as payments received prior to its bankruptcy filing in November.

In a Jan. 9 Twitter thread, BlockFi said it had filed a presentation for its stakeholders detailing plans for future court filings and a rundown of the bankruptcy proceedings. According to the lending firm, the company reached out to 106 potential buyers shortly after its first bankruptcy hearing in November and will ask for the court’s approval regarding the bidding process on Jan. 30.

Specifically, the company claimed that no members of the BlockFi management team had withdrawn any crypto from the platform since Oct. 14 nor “made a withdrawal greater than 0.2 BTC in value at any time” after Aug. 17. The firm also noted it had “increase[d] base salaries and ma[de] retention payments” for certain employees following a $400 million revolving credit facility from FTX US in July.

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BlockFi said it planned to file its assets and liabilities, along with a statement of financial affairs on Jan 11. The announcement followed the United States Department of Justice notifying the court handling the BlockFi bankruptcy that it had seized more than 55 million shares of Robinhood — worth roughly $450 million at the time of publication — as part of the criminal case against crypto exchange FTX and its executives. BlockFi was one of the parties claiming rights to the shares given certain financial ties to FTX.

Related: BlockFi files motion to return frozen crypto to wallet users

Crypto firms FTX, Celsius Network, BlockFi and Voyager Digital all filed for Chapter 11 bankruptcy in 2022, with many users reporting losses totaling in millions of dollars. The next public hearing for FTX’s bankruptcy case is scheduled for Jan. 11, while BlockFi has an omnibus hearing on Jan. 17.