Bankrupt cryptocurrency lender BlockFi is pushing back against efforts by FTX and Three Arrows Capital (3AC) to claim billions of dollars that changed hands between the companies before their respective collapses last year.
In a recent court filing on Monday, BlockFi contested FTX and Three Arrows Capital’s $5 billion claim, alleging that the two entities have unfairly victimized it.
BlockFi argued in the filing that the legal doctrine of “unclean hands” should be invoked to prevent future inequities toward BlockFi’s creditors.
The ongoing conflict could significantly influence the repayment amounts distributed to individual creditors in the bankruptcy cases of BlockFi, FTX, and Three Arrows.
BlockFi, already in the process of liquidation, expressed concern that legal battles with FTX, Three Arrows, and other crypto firms could negatively impact its clients’ repayment by up to $1 billion.
FTX countered BlockFi’s claim by asserting its primary objective is to recover loan repayments and collateral extended to BlockFi before the latter’s bankruptcy filing in November 2022.
FTX is seeking to collect $90 million, withdrawn by BlockFi from FTX.com, and $400 million repaid by its trading arm, Alameda Research, as loan interest.
BlockFi, however, argued that the $400 million wasn’t part of a typical loan arrangement. Instead, it characterized it as an unsecured, 5-year term with below-market interest rates and deferred repayment terms until the company presumably reached maturity.
BlockFi deemed FTX’s investment a “gamble” that should not burden BlockFi’s creditors.
Three Arrows Capital, a significant creditor, maintained that BlockFi owes them over $220 million, a claim pursued through their appointed liquidators.
In accordance with bankruptcy laws, businesses hold the right to reverse transactions that favored certain creditors in the months leading up to a Chapter 11 filing, with the aim of ensuring equitable treatment among creditors.
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