BlockFi says it repaid investor $15 mln to settle over crypto crash

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Executives of bankrupt crypto lender BlockFi Inc have repaid an investor $15 million to settle a threatened lawsuit over the company’s cratering equity value in summer 2022, the company’s attorneys said Monday in bankruptcy court.

The settlement resolved claims by the investor, identified only as “Counterparty A,” who had purchased equity shares that were issued as part of executive compensation packages, BlockFi attorney Joshua Sussberg said at a bankruptcy court hearing in Trenton, New Jersey.

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The shares were sold at a discount to the company’s January 2022 valuation of $6 billion to $8 billion, but their value plummeted over the summer as the collapse of two cryptocurrencies caused widespread havoc in crypto markets.

The BlockFi investor threatened to sue, alleging that BlockFi and its executives should have been more transparent about contagion risks in the cryptocurrency market, according to Sussberg.

BlockFi believed the investor’s claims were “specious,” but it reached a confidential settlement on Aug. 23 under which BlockFi executives repaid $15 million to the investor, Sussberg said.

The largest payment under that settlement was made by BlockFi founder Zac Prince, who repaid $6.144 million.

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BlockFi’s dramatic decline in value was made apparent by an emergency loan extended by crypto exchange FTX on July 1. That loan gave FTX an option to buy BlockFi for $240 million, essentially setting a maximum value for existing equity.

As the company’s value plummeted, BlockFi laid off 20% of its employees. BlockFi will soon seek court approval of an employee bonus package intended to keep remaining staff from fleeing during its bankruptcy and to compensate employees who had previously received company equity as part of their pay, Sussberg said.

FTX’s buyout price meant that Prince’s equity stake lost $412.82 million in value, and caused him to miss out on a planned $600,000 bonus payment, Sussberg said. Prince and other executives will not be included in BlockFi’s upcoming employee retention plan.

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New Jersey-based BlockFi filed for bankruptcy protection on Nov. 28, a direct casualty of FTX’s collapse weeks earlier. FTX founder Sam Bankman-Fried has since been arrested on fraud charges and he has pleaded not guilty.

BlockFi and FTX have been embroiled in a dispute over $465 million shares of online broker Robinhood Markets Inc that BlockFi claimed as collateral on an unpaid debt owed to it by FTX affiliate Alameda Research. That dispute further complicated when the U.S. Department of Justice seized the shares, and a BlockFi attorney said Monday that DOJ was in the process of seizing assets held by two or three BlockFi customers based in Washington state. (Reporting by Dietrich Knauth in New York, Editing by Alexia Garamfalvi and David Gregorio)