According to BlockFi, FTX and Three Arrows Capital are not entitled to repayments.

BlockFi contends that the “ultimate victims” of FTX’s alleged fraud are its creditors, not FTX’s.

Attempts by the similarly bankrupt FTX and Three Arrows Capital (3AC) to recoup hundreds of millions of dollars to pay their creditors are being resisted by the bankrupt cryptocurrency lender BlockFi.

BlockFi argued in a document submitted to a bankruptcy court in New Jersey on August 21 that its own creditors shouldn’t be put last because FTX’s creditors suffered as a result of the exchange allegedly misusing the $5 billion BlockFi financed it.

“FTX seeks to recover on more than $5 billion in claims filed against the BlockFi estates at the direct expense of the ultimate victims of FTX’s fraud: BlockFi’s clients and other legitimate creditors.”

BlockFi said, “The Court should disallow the FTX Claims under the doctrine of unclean hands to prevent further injustice to the creditors of BlockFi’s estates.”

In June 2022, FTX gave $400 million to BlockFi as part of a financing deal in addition to purchasing BlockFi shares, according to the filing.

BlockFi asserted that it wasn’t a typical loan deal and that repayment wasn’t required until the firm would allegedly mature. The loan had a 5-year term, was unsecured, and had an interest rate that was significantly lower than the market.

The investment by FTX was described by BlockFi as a “gamble” that BlockFi creditors shouldn’t be held responsible for.

“Just because FTX’s fraudulent actions caused FTX’s bet to fail does not mean BlockFi’s creditors are now somehow liable to refund the purchase price,” it asserted.

According to estimates, BlockFi owes $10 billion to more than 100,000 creditors, including $1 billion to its three largest debtors and $220 million to the insolvent cryptocurrency hedge firm 3AC.

BlockFi stated that 3AC should not be entitled to a prospective reimbursement since it borrowed money fraudulently from 3AC.

BlockFi argues that its legal battles with FTX, 3AC, and other companies might cost it up to $1 billion, which would reduce the amount it can pay its creditors.

Following a court decision, BlockFi now permits eligible US users to withdraw cryptocurrency.

Prior to doing business with FTX and its trading company Alameda Research in the months before FTX’s collapse in November 2022, a number of BlockFi creditors have accused the company of ignoring significant warning signs.

Despite this, creditors and BlockFi reached a settlement last month to continue with a repayment strategy.

On Nov. 28, BlockFi filed for Chapter 11 bankruptcy, nearly two weeks after FTX did the same.

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