Sam Bankman-Fried is being sued by the bankrupt cryptocurrency lender BlockFi to recover shares in Robinhood that Bankman-Fried allegedly pledged as collateral days before the FTX’s collapse. After “a severe liquidity crunch” caused by Bankman-FTX Fried’s exchange going down, BlockFi filed for bankruptcy on Monday, just hours before the lawsuit was filed.
BlockFi filed the bankruptcy complaint against Bankman-Emergent Fried’s Fidelity Technologies vehicle in the same New Jersey court where BlockFi filed for bankruptcy protection. BlockFi is demanding that the defendant turn over unidentified collateral. Financial Times-seen loan documents indicate that Bankman-stake Fried’s in Robinhood, the online trading company, is at stake. Earlier this year, he invested in 7.6 percent of Robinhood.
As bankruptcy lawyers sift through the wreckage of FTX and other businesses affected by its collapse, this dispute highlights the close ties between crypto ventures and the messy untangling process that is beginning. As a significant crisis in confidence has swept crypto markets this year, tokens like bitcoin and Ethereum have fallen in value to their lowest point since 2020, causing a chain reaction of rippling insolvencies across the industry.
Bankman-Fried is under tremendous duress due to the collapse of his $32 billion FTX empire, and the ongoing dispute is evidence of this. During June, Bankman-Fried positioned himself as a savior for failing crypto ventures by providing emergency financing to BlockFi in exchange for an option to purchase the lender at a fire-sale price. On Monday, however, BlockFi blamed its demise on its association with Bankman-Fried, noting that his Alameda Research trading firm had defaulted on $680 million in collateralized loans in early November. According to the complaint, BlockFi and Emergent entered into a contract on November 9 to guarantee the payments of an unidentified borrower by pledging specific “common stock” as security. The case files include legal correspondence naming Alameda as the borrower.
Authorities in both the United States and the Bahamas, where FTX had its headquarters, are currently looking into the matter. Bankman-Fried had been frantically trying to raise billions of dollars in new financing in the days leading to FTX’s bankruptcy filing on November 11. His shares on Robinhood were listed as assets in the shared spreadsheets he used to solicit funding. The Financial Times reported on November 1 that in the days leading up to FTX’s bankruptcy filing on November 11, Bankman-Fried had been privately attempting to sell the Robinhood shares using the secure messaging app Signal. According to two people who knew the situation, Bankman-Fried continued to discuss the sale of his Robinhood shares even after signing the pledge agreement.
BlockFi also claimed that Emergent’s broker, ED&F Man Capital Markets of London, “refused to transfer the Collateral to BlockFi,” and included the firm in the lawsuit. There is correspondence from an attorney that was filed alongside the complaint that shows ED&F Man refused to transfer the assets “absent an order from the Bankruptcy Court” in the FTX proceedings in Delaware. No immediate response was received from either BlockFi or Bankman-Fried regarding our request for comment.
Marine Corps Veteran-turned-national-tv-personality Eric Mitchell is a world leading expert in sports media, regularly appearing on the world’s largest outlets from BBC, MSNBC, Fox News, Bloomberg, CNN and more. His signature blend of snark and industry expertise landed him columns at none other than RollingStone, GritDaily, PopWrapped, Disrupt — and most recently — Editor in Chief at NFT Today Magazine. When he’s not making media appearances or running his empire at LifeFlip Media, he can be found entertaining his thousands of loyal followers on social media through his authentic filter-free content.