BlockFi Says It Repaid Investor $15M To Settle Crypto Crash

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By Dietrich Knauth

(Reuters) Executives of bankrupt cryptocurrency lender BlockFi Inc have paid back $15 million to an investor to settle a threatened lawsuit over the company’s equity value in the summer of 2022, lawyers said on Monday. company in bankruptcy court.

The settlement resolved the claims of the investor, identified only as Counterparty A, who purchased shares issued under the executive compensation programs, BlockFi attorney Joshua Sussberg told a hearing. in bankruptcy court in Trenton, New Jersey.

The shares were sold at a discount to the company’s January 2022 valuation of $6 billion to $8 billion, but fell in value over the summer as the collapse of two cryptocurrencies caused widespread havoc in the crypto markets.

Investor BlockFi has threatened to sue, alleging that BlockFi and its executives should have been more transparent about contagion risks in the cryptocurrency market, according to Sussberg.

BlockFi thought the investors’ claims were specious, but it reached a confidential settlement on Aug. 23 under which BlockFi executives returned $15 million to the investor, Sussberg said.

The largest payout in this settlement was made by BlockFi founder Zac Prince, who repaid $6.144 million.

BlockFi’s dramatic decline in value was highlighted by an emergency loan from crypto exchange FTX on July 1. This loan gave FTX an option to buy BlockFi for $240 million, essentially setting a maximum value for existing equity.

As the company’s value plummeted, BlockFi laid off 20% of its employees. BlockFi will soon seek court approval for an employee bonus package intended to prevent remaining staff from fleeing during its bankruptcy and to compensate employees who previously received equity from the company as part of their paychecks, it said. Sussberg said.

FTX’s buyout price means Princes’ stake lost $412.82 million and caused him to miss a scheduled bonus payment of $600,000, Sussberg said. Prince and other executives will not be included in BlockFis’ upcoming employee retention plan.

New Jersey-based BlockFi filed for bankruptcy protection on November 28, a direct victim of the FTX meltdown weeks earlier. FTX founder Sam Bankman-Fried has since been arrested for fraud and has pleaded not guilty.

BlockFi and FTX have been embroiled in a dispute over $465 million in shares of online brokerage Robinhood Markets Inc that BlockFi claimed as security for an unpaid debt owed to it by FTX subsidiary Alameda Research. This dispute was further complicated when the US Department of Justice seized the shares, and a BlockFi attorney said on Monday that the DOJ was in the process of seizing assets held by two or three BlockFi customers based in the state. from Washington.

(Reporting by Dietrich Knauth in New York, editing by Alexia Garamfalvi and David Gregorio)

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