FTX Crypto Scandal Continues to Ripple With New BlockFi Lawsuit

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Now, a month after the initial report that shot down FTX, the company’s downfall continues to have a ripple effect. This week, the FTX crypto scandal has brought FiBlock return to the spotlight. The company, which at one point considered Sam Bankman-Fried its savior, is now turning on the entrepreneur in an effort to reclaim his assets. In the meantime, he can blame the crypto exchange as it goes bankrupt.

BlockFi was, at one time, one of the most reputable crypto lenders on the market. However, he was unable to prevent the crypto correction that claimed control of crypto investment firms. The embattled company had excess collateralized loans with Capital of the three arrowswidely considered the ground zero of the crypto path which started in early summer.

This exposure had put the company at risk of bankruptcy and needed swift action. At the time, FTX was going public with a fury, securing endorsement deals left and right. FTX founder Sam Bankman-Fried, who we now know was not telling the truth, claimed that the company was in excellent shape and was able to bail out not just BlockFibut other companies in danger too.

So when the two reached an agreement to allow FTX to acquire BlockFi, it seemed that the crisis had been averted. However, time has shown that this was not the case. FTX and its sister company Alameda Investigation suffered what is perhaps more shocking corporate implosion the crypto space has ever seen. BlockFi is rightfully angry about what FTX had been hiding, and is now taking the company to court to recover its assets.

FTX Crypto Scandal: BlockFi Sues Sam Bankman-Fried Over HOOD Stock

FTX crypto scandal doesn’t stop at FTX bankruptcy and the fall from grace of Sam Bankman-Fried. BlockFi is forced into bankruptcy months after thinking he was safe. However, as he descends into his own proceedings, he is trying to pull his Robin Hood (NASDAQ:HOOD) holds from the infamous crypto billionaire.

On Monday, BlockFi was forced to file for Chapter 11 bankruptcy protections, ending a tumultuous year for the lender. In their first court appearance, BlockFi’s legal team has emphasized distance yourself from FTX. The company’s opening remarks describe BlockFi as “the antithesis of FTX,” using proper procedures, staying consistent in leadership, and reaching out to experts for help.

The BlockFi-FTX scandal spills over into the traditional investment sphere as well, as the company’s new lawsuit shows. Filed the same day as his bankruptcy protection, BlockFi is going after the actions of Sam Bankman-Fried. According to the lawsuit, Bankman-Fried’s investment company, Emerging loyalty technologiesit is in possession of “guarantee belonging to BlockFi”.

Earlier this year, Bankman-Fried had took a 7.6% stake on the Robinhood e-commerce platform. BlockFi claims that Bankman-Fried had secured this stake through Emergent Fidelity for BlockFi’s loans, and that the assets belong to it. The stake is currently worth $520 million.

According to reports of the financial times, Sam Bankman-Fried was guaranteeing this loan at the same time that he was trying to sell his interest in HOOD. Overall, the news is doing well to further discredit Bankman-Fried’s image. And BlockFi will certainly benefit from taking its complaint to court.

As of the date of publication, Brenden Rearick did not (either directly or indirectly) hold any position in the securities mentioned in this article. Opinions expressed in this article are those of the author, subject to InvestorPlace.com Posting Guidelines.

Brenden Rearick is a financial news writer for InvestorPlace’s Market Today team. He mainly covers digital assets and tech stocks, with a focus on crypto regulation and DeFi.