The recent legal kerfuffle between now-defunct crypto lender, BlockFi, and trading platform, FTX, highlights the complex interplay of financial transactions in the crypto universe. At its core, over a billion dollars of disputed transactions is at stake and these contested issues spotlight certain regulatory challenges coming to the fore.
In a unique scenario, BlockFi’s plans, which are set to be discussed at a New Jersey court hearing on July 13, have met with opposition from liquidated hedge fund Three Arrows Capital (3AC) and federal regulator, the SEC. FTX, which came to BlockFi’s rescue at the eleventh hour just a year ago before filing for bankruptcy, has contended that its legitimate claims against BlockFi have been unduly undermined by the proposed plan.
FTX pointed out that BlockFi presumed that some bankruptcy magic will erase FTX’s claims without adhering to fundamental procedural fairness and due process stipulations in a proposed plan filed in June. In a nutshell, FTX believes that BlockFi is attempting to exploit the plan process illicitly.
Attached to FTX’s misgivings about BlockFi’s plans are a multitude of multimillion-dollar repayments and collateral linked to a loan that FTX’s trading arm, Alameda Research, had negotiated. This is in addition to $1 billion in collateral pledges by Emergent Fidelity, an organization set up by FTX head honcho, Sam Bankman-Fried, to hold shares in Robinhood.
Tensions are further sparked by issues with 3AC’s claims of being due over $220 million by BlockFi only to feel mollified by not being afforded the opportunity to contest fraud allegations. Meanwhile, the SEC has expressed concerns regarding suggested clauses, claiming they are overly vague and could potentially absolve BlockFi and its management from accountability.
In a domino effect, these legal complexities have influenced other stakeholders in the market. The incident provoked Binance.US to withdraw its bid to buy Voyager after the SEC raised similar objections against the crypto lender. Critics of BlockFi argue that its bankruptcy blueprint is essentially an extravagant loophole, allowing executives to escape legal culpability for unsound financial judgments, suggesting the company should perhaps be liquidated instead.
However, underlying this tangled web of financials is the pressing need for comprehensive regulatory mechanisms. As crypto companies find themselves embroiled in separate bankruptcy cases, the main objective must remain the same: to repay customers and other creditors while maintaining faith in the health and safety of the crypto market.
Source: Coindesk
