BlockFi files for bankruptcy

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The crypto collapse continued Nov. 28 as Jersey City’s BlockFi announced that it had sought bankruptcy protection.

The Chapter 11 filing in New Jersey comes amid an industry-wide downturn and on the heels of FTX’s dramatic fall, which has affected BlockFi’s business. The company said the purpose is to stabilize its businesses and provide an opportunity to consummate a restructuring that maximizes values for its clients and stakeholders.

“As part of its restructuring efforts, the company will focus on recovering all obligations owed to BlockFi by its counterparties, including FTX and associated corporate entities,” BlockFi said in a statement announcing the move. “Due to the recent collapse of FTX and its ensuing bankruptcy process, which remains ongoing, the company expects that recoveries from FTX will be delayed.”

“With the collapse of FTX, the BlockFi management team and board of directors immediately took action to protect clients and the company,” said Mark Renzi of Berkeley Research Group, the company’s financial advisor. “From inception, BlockFi has worked to positively shape the cryptocurrency industry and advance the sector. BlockFi looks forward to a transparent process that achieves the best outcome for all clients and stakeholders.”

It also follows a transactions pause, which remains in place, announced two weeks ago with the cryptocurrency lender acknowledging that the company has significant exposure to FTX.

“We know the past few days have been incredibly difficult for you,” BlockFi wrote in a letter to clients on Nov. 14. “We are deeply saddened to see the devastation that is cascading across an industry that we love and believe in, touching the lives of so many people. Our top priority remains doing the best we can for our clients.”

BlockFi said its filing included a series of customary motions to allow it to continue operating its business, including requests to pay employee wages and continue employee benefits without disruption, to establish a Key Employee Retention Plan to ensure the company retains trained internal resources for business-critical functions during this process. The company also initiated an internal plan to considerably reduce expenses, including labor costs.

In its filing, the company said it had more than 100,000 creditors and liabilities and assets ranging from $1 billion to $10 billion. BlockFi has $256.9 million in cash on hand, which the company expects to provide sufficient liquidity to support certain operations during the process.

Haynes and Boone LLP, Kirkland & Ellis LLP and Cole Schotz PC are serving as counsel in the proceedings; Moelis & Co. and Berkeley Research Group are providing financial advice. C Street Advisory Group LLC is serving as strategic restructuring and communication advisor to BlockFi.

“Since the pause, our team has explored every strategic option and alternative available to us and has remained laser-focused on our primary objective of doing the best we can for our clients,” BlockFi leaders wrote in a letter to clients Monday. “Rest assured, we will continue to work on recovering all obligations owed to BlockFi as promptly as practicable.”

The company said those obligations from counterparties include an outstanding loan of $275 million to FTX US.

“Acting in the best interest of our clients is our top focus and continues to guide our path forward,” BlockFi wrote on Twitter.

Acting in the best interest of our clients is our top focus and continues to guide our path forward. Chapter 11 is a transparent process and we will continue to communicate with our clients to ensure they hear directly from us.

— BlockFi (@BlockFi) November 28, 2022