BlockFi sues FTX’s founder Sam Bankman-Fried to seize his $575 million stake in Robinhood, FT reports

Just a few hours after filing for Chapter 11 bankruptcy, crypto lender BlockFi filed has sued the disgraced FTX’s founder Sam Bankman-Fried to seize his $575 million stake in stock and trading app Robinhood.

According to a report from the Financial Times, BlockFi is suing over shares in Robinhood that Bankman-Fried allegedly pledged as collateral earlier this month. The crypto lender sued Bankman-Fried’s Emergent Fidelity Technologies vehicle, asking that he turn over unspecified collateral BlockFi says it is owed.

The lawsuit was filed in the same New Jersey court where BlockFi initiated bankruptcy proceedings, Financial Times reported. The lawsuit is another blow to Bankman-Fried, who is still scheduled to speak on Wednesday, November 30 at The New York Times Summit with Ukraine’s President Zelensky, Janet Yellen, and others.

“The complaint also claimed that BlockFi entered into an agreement with Emergent on November 9 to guarantee the payment obligations of an unnamed borrower by pledging certain “common stock” as security,” FT wrote.

As we reported back in July, Bankman-Fried revealed in May that he had personally taken a 7.6% stake in Robinhood Markets Inc, capitalizing on the trading app’s weakened share price. Now, that disclosure is coming back to haunt him. There were speculations that FTX wanted to buy the fintech startup and commission-free trading app Robinhood.

Meanwhile, BlockFi filed Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the District of New Jersey following the collapse of crypto FTX. The announcement comes two weeks after the distressed crypto lender said it was preparing for bankruptcy as FTX. BlockFi is the latest in a series of crypto companies caught in the financial entanglement with the now-bankrupt FTX.

According to the filing, BlockFi indicated that it had more than 100,000 creditors, with liabilities and assets ranging from $1 billion to $10 billion. The Jersey City, New Jersey-based startup had already frozen withdrawals of customer deposits and admitted that it has “significant exposure” to bankrupt exchange FTX. The company added it couldn’t operate business as usual given the uncertainty about FTX.

FTX filed for bankruptcy on November 11, making it one of the biggest collapses in the industry. Bankman-Fried, who was once called the King of Crypto, also resigned from the company.

Bankman-Fried also secretly moved $10 billion to Alameda Research using a “backdoor” he built into FTX software without alerting external auditors. In addition, Alameda Research allegedly used FTX’s client funds and assets to finance risky investments.

According to the court filings (see PDF below), FTX is a complex web of 134 corporate entities around the world, collectively referred to now as FTX Group. All of these 134 companies are now been put into bankruptcy.

During the bankruptcy hearing at the U.S. Bankruptcy Court for the District of Delaware, the newly appointed FTX CEO John Ray III, who also oversaw Enron’s bankruptcy, said that “in his 40 years of legal and restructuring experience,” he had never seen “such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.”

In the filing, Ray also disclosed that he did “not have confidence” in the accuracy of the balance sheets for FTX and its sister company Alameda Research, writing that they were “unaudited and produced while the Debtors [FTX] were controlled by Mr. Bankman-Fried.”

Bankman-Fried first came into the spotlight in 2020 after he donated a whopping $5.2 million to Joe Biden’s campaign, making him the second-biggest donor.

Bankman-Fried founded FTX in 2019 with his co-founder Gary Wang. The Bahamas-based crypto exchange FTX offers derivatives products like futures and options as well as spot trading. Once an unknown startup, FTX has become a key player in the crypto space, rivaling the likes of Coinbase and Binance.