(the reader's comments are along the lines of "it was always a ponzi scheme" "it was always a way for criminals to hide transactions" - like I said, these financial fads are ALWAYS A SCHEME)

https://www.nytimes.com/2022/11/28/business/blockfi-bankruptcy-cryptocurrency-ftx.html#commentsContainer

Crypto Lender BlockFi Files for Bankruptcy as FTX Fallout Spreads
BlockFi was entangled with FTX, and its stability was thrust into uncertainty after FTX collapsed.


BlockFi marketed itself mainly to small investors, offering them loans in minutes without credit checks.

BlockFi marketed itself mainly to small investors, offering them loans in minutes without credit checks.Credit...Samuel Corum for The New York Times

By Lauren Hirsch, David Yaffe-Bellany and Ephrat Livni

Nov. 28, 2022

Updated 2:40 p.m. ET

BlockFi, a cryptocurrency lender that targeted ordinary investors eager for a piece of the crypto mania, filed for bankruptcy on Monday, felled by its financial ties to FTX, the embattled exchange whose recent downfall has shaken the crypto industry to its core.

Based in Jersey City, N.J., BlockFi marketed itself primarily to small investors, offering them loans backed by cryptocurrency in minutes without credit checks, as well as accounts that paid high interest on crypto deposits. As of last year, the lender claimed to have more than 450,000 retail clients.

On Monday, BlockFi, which was founded in 2017, filed for Chapter 11 protection in New Jersey. Its implosion is the latest example of an industry built on shaky foundations, with companies so intertwined that a single wobble can unleash financial chaos.

BlockFi isn’t the first crypto lender to file for bankruptcy. In July, two of its rivals, Celsius Network and Voyager Digital, collapsed within a week of each other. They were struggling to right themselves after a market panic in the spring, when the value of many high-profile cryptocurrencies plummeted. Bitcoin alone fell 20 percent in a week.


BlockFi had been reeling since then. To stabilize itself, the lender struck a deal with FTX in June, which was seen as a safety net at the time given the exchange’s credibility and dominance in the crypto industry. FTX agreed to provide the company with a $400 million credit line — essentially a loan BlockFi could tap as needed.

A Symbiotic Relationship: Mr. Bankman-Fried’s built FTX partly to help the trading business of Alameda Research, his first company. The ties between the two entities are now coming under scrutiny.
Missing Assets: Lawyers for FTX said a substantial amount of the company’s assets had either been stolen or were missing, casting doubt on the odds of recovering billions of dollars in crypto that customers lost.
A Bid for Influence: ​​In just three years, Mr. Bankman-Fried built a massive operation to woo politicians, regulators and nonprofits to support his crypto goals. Here’s how.
In announcing the funding, Zac Prince, the chief executive of BlockFi, said it would provide “access to capital that further bolsters our balance sheet.” The deal also gave FTX the option to buy BlockFi.

BlockFi subsequently borrowed $275 million from a subsidiary of FTX, according to its bankruptcy filings. That financial entanglement meant that when FTX toppled and was forced to file for bankruptcy amid revelations of corporate missteps and suspicious management, BlockFi began to struggle, too.

A few days after the exchange collapsed, BlockFi told customers that they couldn’t withdraw their deposits because it had “significant exposure” to FTX, including additional funds the company had hoped to draw on under the agreement and other assets held on the FTX platform.

In its filing on Monday, BlockFi said it had about $257 million in cash on hand to help support its business through the bankruptcy. The company said in court filings it had more than 100,000 creditors, as well as $10 billion in assets and liabilities. It also said it would reduce expenses considerably, including labor costs. It employed 850 people as of last year.


BlockFi also said it would focus on recovering all obligations owed to the company, including those by FTX. However, it warned of delays in recovering assets from FTX given the exchange’s bankruptcy.

John J. Ray III, the new chief executive of FTX, who previously led Enron during its bankruptcy, has called the corporate dysfunction at FTX “unprecedented.” Legal experts say it could take years to unwind and recover assets.

Regulators had already been scrutinizing BlockFi. In February, the Securities and Exchange Commission reached a $100 million settlement with the company’s lending arm for offering loans without registering them as securities, and for not registering itself as an investment company. The S.E.C. also found BlockFi made false and misleading statements about the level of risk in its loan portfolio and lending activity.

BlockFi still owes the S.E.C. $30 million, according to its bankruptcy filing, making the nation’s top securities cop its fourth-largest creditor. It owes $275 million to West Realm Shires, the parent company of FTX’s U.S. exchange and BlockFi’s second-largest creditor. Its top creditor, at about $729 million, is Ankura Trust Company, which specializes in managing loans for distressed companies.

“From inception, BlockFi has worked to positively shape the cryptocurrency industry and advance the sector,” said Mark Renzi of Berkeley Research Group, a financial adviser to the company. “BlockFi looks forward to a transparent process that achieves the best outcome for all clients and other stakeholders.”

BlockFi’s other bankruptcy advisers include the law firm Haynes and Boone, investment bank Moelis & Company and strategic adviser C Street Advisory Group.