©Reuters. FILE PHOTO: The FTX logo is seen in this illustration taken March 31, 2023. REUTERS/Dado Ruvic/Illustration/File Photo
By Dietrich Knauth
NEW YORK (Reuters) – Bankrupt cryptocurrency firms FTX and BlockFi have settled disputes stemming from the companies’ collapse in 2022, with FTX agreeing to pay BlockFi up to $874 million, according to court documents filed on Wednesday .
The deal is subject to approval by U.S. Bankruptcy Judge John Dorsey in Wilmington, Delaware.
The two companies sued each other in 2023, seeking to recover money they lent each other before they both went bankrupt in November 2022. Under the new deal, FTX agreed to prioritize a $250 million payment of dollars to BlockFi and the rest of the agreement. depends on its efforts to repay its customers in the event of failure.
The two companies had a close relationship before a market crash in 2022 revealed FTX’s widespread misuse of customer funds. BlockFi provided loans to FTX-affiliated hedge fund Alameda Research and turned to FTX for bailout funding during a volatile cryptocurrency market in summer 2022.
FTX could pay BlockFi up to $689 million due to the Alamexa loans, but only the first $250 million is guaranteed. The rest depends on FTX’s ability to repay its customers and other creditors first, according to court documents filed in bankruptcy courts in Delaware and New Jersey.
FTX also agreed to pay BlockFi an additional $185.3 million, to cover the amount BlockFi held in its FTX trading accounts when the cryptocurrency exchange collapsed in 2022.
FTX expects to repay its customers in full, but that outcome is not guaranteed, an FTX lawyer said in January.
BlockFi had previously agreed to repay FTX up to $275 million from its 2022 bailout loan, but only if it can first repay its customers in full.
BlockFi said it was unlikely to fully repay customers who had interest-bearing BlockFi accounts. The company had previously estimated that such customers could receive between 39.4% and 100% of the value in their accounts.
As part of the settlement, BlockFi agreed to drop the lawsuit over more than 56 million Robinhood (NASDAQ:) shares that were allegedly pledged as collateral for BlockFi’s loans to Alameda. Those shares were later seized by the US Department of Justice when FTX founder Sam Bankman-Fried was arrested.
Bankman-Fried was convicted in November 2023 of stealing $8 billion from FTX clients. He is scheduled to be sentenced on March 28 and he is expected to appeal against his conviction.