Bankrupt cryptocurrency lender BlockFi is trying to block attempts by also bankrupt FTX and Three Arrows Capital, which aimed to recover hundreds of millions of dollars to repay creditors.
BlockFi claimed on August 21 that archive It told the New Jersey bankruptcy court that it should not push its own creditors to the end because FTX’s creditors were harmed by the exchange’s alleged misappropriation of $5 billion that BlockFi lent it.
“FTX seeks to recover more than $5 billion in claims against BlockFi’s estate at the direct expense of the ultimate victims of FTX’s fraud: BlockFi’s customers and other legitimate creditors.”
BlockFi added: “To prevent further injustice to creditors of BlockFi’s property, the court should dismiss the FTX claim under the unclean hands doctrine.”
In addition to purchasing BlockFi equity under the loan agreement, FTX also provided $400 million to BlockFi in June 2022, the filing said.
However, BlockFi claims that this is not a standard loan agreement – it is an unsecured 5-year agreement, well below market rates, and will not be repaid until the company matures.
BlockFi called the FTX investment a “gamble” for which BlockFi creditors should not be held liable.
“Just because FTX’s fraud caused FTX’s bet to fail does not mean that BlockFi’s creditors are now obligated to refund the purchase price in some way,” it argued.
It is estimated that BlockFi owes as much as $10 billion to more than 100,000 creditors, including $1 billion to its three largest creditors and $220 million to bankrupt crypto hedge fund 3AC.
BlockFi alleges that 3AC defrauded it of the funds it borrowed, arguing that it also should not be entitled to potential repayments.
BlockFi claims its lawsuits with FTX, 3AC and others could cost it as much as $1 billion, affecting the amount owed by its creditors.
related: BlockFi Opens Crypto Withdrawals to Eligible US Users Following Court Order
Several BlockFi creditors previously accused the company of ignoring several red flags when it traded with FTX and its trading firm Alameda Research in the months leading up to FTX’s collapse in November 2022.
Still, creditors reached a settlement with BlockFi last month to move forward with the repayment plan.
BlockFi filed for Chapter 11 bankruptcy on Nov. 28, about two weeks after FTX similarly filed.
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