Tensions have escalated between the BlockFi Creditors Committee and the beleaguered digital asset lender's management, with the former rebuffing BlockFi's assertion that it fell victim to FTX and Alameda Research while characterizing this as a "misleading narrative."
They attributed the firm's downfall to mismanagement and the actions of its restructuring agents, according to a court document released late on Monday.
The Creditors Committee highlighted that in the aftermath of the FTX debacle, which triggered a massive downturn in cryptocurrency markets, BlockFi converted approximately $240 million in digital assets into traditional currency.
This move reportedly led to substantial monetary losses and potential tax complications for its clients.
The proceeds from this conversion, alongside an extra $10 million, were then deposited into SVB Financial Group's
The creditors stated, "SVB was not a financial institution of adequate solidity to fulfill the protective prerequisites of the Bankruptcy Code, leading the United States Trustee to object to the estate's funds being deposited there."
An agreement was eventually reached for SVB to secure adequate collateral in the event of a bank failure, but BlockFi and its restructuring team failed to implement this, leaving no bond posted, according to the creditors.
They noted, "Thankfully, the federal government intervened to rescue all SVB depositors, including BlockFi."
Moreover, the creditors raised objections to BlockFi's expenditure of $22.5 million from customer funds to secure a $30 million insurance policy for its directors and officers.
Given the 60% upsurge in Bitcoin's value since its November 2022 low, the creditors estimate nearly $100 million in value was lost due to BlockFi's liquidation decision.
Crucially, parts of this document, particularly sections explaining why the creditors consider BlockFi's narrative to be misleading, have been redacted.
Following BlockFi's bankruptcy in the aftermath of the FTX collapse, its clients can anticipate the recovery of almost $300 million held in custodial wallets.
This decision came from New Jersey Bankruptcy Judge Michael Kaplan on Thursday, who determined that these assets belong to the clients, not the insolvent cryptocurrency lender's estate.
Kaplan refused to authorize the reimbursement of an additional $375 million that clients tried to withdraw from BlockFi's interest-bearing accounts (BIA) after the company suspended funds last year due to the ripple effects of the FTX collapse on the crypto industry.
