Kroll

Bankruptcy court told FTX and Alameda owe BlockFi $1B, but it’s complicated

While BlockFi has attempted to separate itself from FTX and Alameda in its bankruptcy proceedings, it has many financial ties to firms owned by SBF.

A lawyer for BlockFi told the first-day hearing of its bankruptcy proceedings that the crypto lender has $355 million stuck on FTX and that the collapsed exchange’s sister company Alameda Research has defaulted on a $680 million loan.

BlockFi filed 15 motions on Nov. 28 that were approved by the court in the first day hearing on Nov. 29, including the redaction of personal details of its 50 largest creditors and the appointment of Kroll Restructuring Administration as its claims and noticing agent — the same firm chosen by FTX for its Chapter 11 bankruptcy case.

In a message emailed to worried clients, BlockFi noted that the approved motions allow it to continue “core operations” during the restructuring process and also to continue to pay its employees and independent contractors. BlockFi estimates that its wages bill is around $5.8 million per month and that it owed around $1.5 million in wages when it filed the motion on Nov. 28.

The message to clients said that BlockFi’s “singular focus” throughout the proceedings is “maximizing value for all clients and other stakeholders.”

According to a Nov. 29 CNBC report, BlockFi’s attorney, Joshua Sussberg, also added in the hearing that BlockFi plans to reopen withdrawals to customers at an unspecified time, and he was optimistic that the firm will be able to salvage the business after the restructuring.

While FTX and Alameda owe BlockFi around $1 billion, the state of financial obligations is made more complicated by the $400 million line of credit extended to BlockFi by FTX.US on July 1.

According to BlockFi, which cited the FTX collapse as the reason for its woes, it still owes $275 million to FTX.US in a deal that it claims was agreed to by 89% of its shareholders.

The funds were provided to BlockFi after it was caught up in the contagion caused by the collapse of Terra’s stablecoin on May 10. BlockFi revealed that the loan is set to mature on June 30, 2027, and has an interest rate of 5%.

Additionally, on Nov. 28, BlockFi sued a holding company of Bankman-Fried’s called Emergent Fidelity Technologies, seeking collateral that Emergent had pledged to pay on Nov. 9, which includes shares in the online brokerage Robinhood. The next hearing is set to be held on Jan. 9.

*Timeline of BlockFi’s history. Source: First Day Hearing Presentation.*

FTX names Kroll as claims agent, to update users on bankruptcy developments

Claims and noticing agents such as Kroll are often assigned to bankruptcy cases where the number of creditors exceeds a thousand.

Bankrupt crypto exchange FTX has appointed restructuring administration firm Kroll as its agent to track all claims against FTX and ensure interested parties are notified of developments throughout its Chapter 11 bankruptcy case.

Known as the “claims and noticing agent,” Kroll was appointed to the role on Nov. 12, with the news made public on Nov. 17 and aims to compile a database of all claims against FTX Trading and 101 affiliated companies.

Press Release:

FTX Group has established Kroll as its claims agent, and all official documents filed with the U.S. Bankruptcy Court can be found online at https://t.co/7Bsn9Ggckf. pic.twitter.com/OFuCmlJXgJ

— FTX (@FTX_Official) November 17, 2022

At the time of writing, this database lists only eight claims, including one from Singaporean-based blockchain development firm Ethereal Tech for $11.7 million, but will soon be fleshed out as more claims against the group are lodged.

For example, one other case that Kroll has worked on, that of rental car company Hertz, has 62,061 claims against it from its Chapter 11 bankruptcy case.

The eight claims currently included already amount to $40.9 million, though FTX Trading alone is understood to owe customers and investors as much as $8 billion.

Within the filing, the firm has also compiled a list of interested parties it will keep updated on developments, which it acknowledges is incomplete and does not currently include customers.

This list is currently composed of approximately 750 parties who have some kind of interest in the case, with some of the included groups consisting of debtors, banks, landlords, insurance providers, directors, landlords and regulators.

Some noteworthy names included in the list are National Australia Bank (NAB), Apple, Facebook, JPMorgan, Chainalysis, Wells Fargo, Bank of America, Circle, Stephen Curry, Reddit and Yuga Labs.

Meanwhile, the number of creditors involved with FTX is thought to be in excess of one million, and corporate securities lawyer Margaret Rosenfeld told Cointelegraph it will take years before any begin to receive any funds back, adding:

“You can’t make creditor distributions until these claims are analyzed. It’s also way too early to speculate on what kind of distribution creditors will get back. Though in mega cases, such as this, full recovery would be unusual.”

Kroll Restructuring Administration is an indirect subsidiary of Kroll LLC, which is one of the world’s largest corporate intelligence companies. Notably, the firm had been employed by Harvey Weinstein on multiple occasions, including when allegations of sexual harassment were brought against him in 2016.

The parent company offers a wide range of services in areas such as environmental, social, and corporate governance (ESG), valuation, compliance, cyber risk, investigations and corporate finance.

On Nov. 15, regulators in the Bahamas argued that FTX’s new CEO lacks the authority to initiate Chapter 11 proceedings in the United States, with the provisional liquidator overseeing the bankruptcy proceedings of FTX Digital Markets in the Bahamas rejecting the “validity of any purported attempt to place FTX Affiliates in bankruptcy.”