In a court filing on November 13th, U.S. bankruptcy judge Michael Kaplan ended an automatic stay on proceedings between bankrupt crypto companies FTX and BlockFi, paving the way for mediation in their claims settlement.
BlockFi’s forced bankruptcy
FTX founder, Sam Bankman-Fried, was found guilty on seven charges earlier this month following a grueling month-long trial which saw the former “king of crypto” testify in his own defense.
BlockFi CEO, Zac Prince, took the witness stand against Bankman-Fried, testifying that the crypto lender had over $350 million on the exchange as well as over $670 million in unpaid loans to FTX’s sister company, Alameda Research, when it collapsed.
On November 11th, 2022, FTX and Alameda Research filed for bankruptcy. On November 28th, 2022, BlockFi was forced to follow suit.
Overall, Prince testified BlockFi lost “a little over a billion dollars” in the collapse, claiming he never would have invested in the doomed crypto exchange had he known the truth of their financial situation.
“A complete failure of corporate controls”
News of the filing comes shortly after wallets linked to FTX shuffled millions of dollars worth of Solana’s SOL tokens to Binance and Wintermute, signaling a potential selling off of the tokens from the debtor group. Meanwhile, Solana has cooled off following a rally that saw over a 100% gain within the span of a month.
John Jay Ray III, an attorney specializing in recovering funds from troubled companies, is overseeing FTX’s bankruptcy estate.
“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” Ray wrote in a 2022 court filing.
“From compromised systems integrity and faulty regulatory oversight abroad to the concentration of control in the hands of a very small group of inexperienced, unsophisticated, and potentially compromised individuals, this situation is unprecedented,” Ray continued.
FTX debtors put forth an amended settlement plan last month that, if approved, would see customers of FTX receive “over 90% of distributable value worldwide.”
“Ray’s done an amazing job of clawing back money,” said Tim Enneking, Managing Partner at Psalion and CEO of Presearch.com, Inc. “It was an $8 billion hole, and he’s doing a masterful job of filling it.”
What to expect going forward
Meanwhile, BlockFi recently finalized a restructuring plan that will facilitate client recoveries, promising a potential exit from their state of bankruptcy.
The automatic stay was tweaked to allow FTX debtors to make “arguments, defenses, counterclaims, setoffs, or otherwise.”
Mediation is expected to begin “no later” than December 24th, 2023.