Crypto company BlockFi declares bankruptcy in the first big aftershock of FTX's fall
Another crypto company has fallen, as contagion from the collapse of cryptocurrency exchange FTX spreads across the industry: BlockFi says it has filed for bankruptcy.
BlockFi was one of a handful of companies FTX bailed out in recent months, and its prospects worsened considerably as FTX imploded.
Announcing its plans to file for Chapter 11 reorganization in New Jersey, where the company is based, BlockFi noted FTX's own bankruptcy proceedings will lead to delays.
"Rest assured, we will continue to work on recovering all obligations owed to BlockFi as promptly as practicable," the company said in a letter to customers.
BlockFi had halted withdrawals, and had asked its customers "not to submit any deposits to BlockFi Wallet or Interest accounts."
The company said on Monday that platform activities continue to be "paused at this time."
BlockFi has attracted regulatory scrutiny in the past. Earlier this month, California's Department of Financial Protection and Innovation announced it is "suspending the California Financing Law license of BlockFi Lending for a period of 30 days, pending investigation."
BlockFi's links to FTX
In a letter to customers two weeks ago, BlockFi co-founders CEO Zac Prince and COO Flori Marquez acknowledged the company has "significant exposure to FTX and associated corporate entities," including assets held by FTX.
"We are deeply saddened to see the devastation that is cascading across an industry that we love and believe in, touching the lives of so many people," they said.
During the summer, FTX agreed to provide BlockFi with a $400 million revolving credit facility, to use as a backstop, in exchange for the option to buy the company for as much as $240 million.
"Ultimately, we found a great partner in FTX US, who shares our commitment to clients," Prince and Marquez said at the time. BlockFi blamed its predicament on "crypto market volatility" and a broader market downturn.
In June, another crypto lending platform, Celsius, filed for bankruptcy, and while BlockFi said it didn't have any direct exposure to the competitor, it led to an uptick in customer withdrawals. Shortly thereafter, the crypto hedge fund Three Arrows Capital collapsed, and BlockFi said it suffered about $80 million in losses.
This has been a difficult year for crypto and crypto companies, to say the least. The value of bitcoin is down about 65%. And in June, BlockFi announced it was cutting its staff by about 20%.
"This decision was driven by market conditions that have had a negative impact on our growth rate and a rigorous review of our strategic priorities," BlockFi said.
But BlockFi's problems go beyond market or macroeconomic conditions. In February, the company settled charges with the Securities and Exchange Commission for $50 million, and it agreed to pay an additional $50 million fine to more than 30 state regulators.
The SEC charged BlockFi with failing to register its crypto lending product with the commission. In addition, it said BlockFi made "a false and misleading statement for more than two years on its website concerning the level of risk in its portfolio and lending activity."
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