Wed 03/06/2024 19:23 PM
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Relevant Documents:
FTX Settlement Motion / Declaration
BlockFi Settlement Motion / Status Report

The FTX Group debtors and BlockFi debtors filed motions today seeking approval of a global settlement between their respective estates. According to the filings, the settlement resolves BlockFi’s asserted $1 billion of claims in the FTX cases - $689 million in principal amount of purportedly secured loan claims asserted and approximately $469 million of customer claims - and various unliquidated litigation claims asserted between the two estates. The majority of BlockFi’s claims would be allowed against FTX Group debtor Alameda Research.

In conjunction with BlockFi’s plan, the parties had negotiated a previous settlement subordinating FTX’s contractual claims against the BlockFi estates while reserving FTX’s avoidance claims against BlockFi and BlockFi’s claims in the FTX cases for later determination. The agreement also stayed litigation of the parties’ competing claims to the proceeds of approximately 55 million shares in Robinhood stock formerly held by Emergent Fidelity Technologies, an entity associated with FTX founder and former CEO Sam Bankman-Fried. The shares were liquidated last year for approximately $605.7 million in a court-authorized sale after they were seized in connection with criminal proceedings against Bankman-Fried. The settlement allocates value resulting from the shares to FTX Group.

BlockFi asserted ownership of the shares via a pledge by Alameda to secure $660 million in defaulted loans, while FTX Group says that the shares are estate property purchased with funds advanced by Alameda. The joint provisional liquidators in Emergent’s Antiguan liquidation proceeding and Bankman-Fried have also asserted interests in the shares.

Under the settlement, BlockFi would be granted a $250 million partially secured claim, with the remaining approximately $439 million of the loan claims allowed as a general unsecured claim (the allocation of the claims at the various FTX Group debtor entities and between the various BlockFi debtors are detailed below). The partially secured nature of the claim resolves the parties’ dispute over the potential avoidance of Alameda’s collateral pledge extended in the run-up to FTX’s bankruptcy filing. The settlement would also allow BlockFi’s customer claim in full at $185 million and release all of BlockFi’s other claims.

Specifically, the settlement would allocate claims as follows:
  • Debtors BlockFi Lending and BlockFi International would be granted allowed secured claims against Alameda in the aggregate amount of $250 million, of which $43.82 million would be allocated to debtor BlockFi Lending and $206.18 million would be allocated to debtor BlockFi International. Both claims would be entitled to postpetition interest at the federal judgment interest rate through the plan effective date.
  • Debtors BlockFi Lending and BlockFi International would be granted allowed general unsecured claims against Alameda in the amount of $439.32 million, of which $77 million would be allocated to the BlockFi Lending debtor and $362.32 would be allocated to the BlockFi International debtor. Both claims would be entitled to postpetition interest to the extent interest is provided to other similarly situated general unsecured claims in any FTX plan.
  • Debtor BlockFi International would have an allowed customer claim against the FTX Trading debtor in the amount of $185.2 million, which would be entitled to postpetition interest to the extent interest is provided to other similarly situated customer claims in any FTX plan.
  • The FTX Group debtors would be able to classify these allowed claims separately under their plan, so long as the treatment provided is consistent with the global settlement and the allowed secured claim is paid “promptly” in cash following the FTX plan effective date.

Additionally, BlockFi would waive all other claims against the FTX Group debtors, including with respect to any property purportedly pledged as collateral to BlockFi, such as the Robinhood shares, Solana shares and certain Serum tokens. The FTX Group debtors would also waive and release all claims against BlockFi other than the West Realm Shires loan facility claim.

BlockFi would be deemed to have assigned to the FTX Group debtors all of its rights with respect to the proceeds of the Robinhood shares held by the U.S. Department of Justice, including rights related to any purported pledge or guarantee from any of the FTX Group debtors or Emergent. BlockFi and the FTX Group debtors agree to promptly obtain the release and return of the collateral pledged by FTX to BlockFi, including proceeds of the Robinhood shares, the Coinbase SOL and the SRM. This collateral includes more than $600 million from the sale of Robinhood Markets Inc. Class A common stock that is seized and held by the DOJ, and certain Solana coins held in a joint custody account at Coinbase worth approximately $100 million, the filing states.

Finally, BlockFi agrees to support and vote in favor of any FTX plan that is consistent with the settlement agreement.

According to the BlockFi plan administrator, the settlement “is very good news for the estates and creditors of BlockFi” because it would allow approximately $250 million of BlockFi’s claims against the FTX Group estates to be distributed to BlockFi’s creditors on the effective date of FTX Group’s bankruptcy plan, anticipated in 2024, while the remaining $625 million as well as potential interest “will be entitled to distributions in the coming months and years.”

As disclosed during a Jan. 31 hearing, the FTX Group debtors anticipate that third-party customers and general unsecured creditors would be paid 100% over time, “measured at petition time value” and subject to voluntary subordination of governmental claims under their plan.

BlockFi’s plan went effective on Oct. 23, 2023, and the wind-down plan administrator has indicated recoveries against the debtors’ estates are expected to range from 30% to 40%, with claims against debtor BlockFi Inc. at the “lower end” of the range and claims against debtors BlockFi Lending and BlockFi International at the “higher end.” These recoveries are within the range of the disclosure statement’s projected recoveries.

The BlockFi plan administrator filed a status report today praising the settlement as “an excellent outcome for BlockFi and its customers - one better than could have been anticipated” on the BlockFi plan effective date. According to the plan administrator, the settlement would “likely” allow a second interim distribution “in the near term” and before distributions begin on general FTX unsecured claims because the administrator would be able to release a “substantial portion” of the plan’s litigation reserve. The remainder of BlockFi’s claims would receive distributions pursuant to FTX’s plan and would be treated “substantially the same as other similarly situated claims,” the plan administrator adds.

The BlockFi wind-down debtors’ settlement motion is set for hearing on March 27 at 10 a.m. ET, with an objection deadline of March 20. The FTX Group debtors’ motion is scheduled to be heard April 18 at 1 p.m. ET, with an objection deadline of March 20 at 4 p.m. ET.
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