(Bloomberg) -- BlockFi Inc. sold about $239 million of its own cryptocurrency and warned almost 250 workers that they would lose their jobs in the run-up to its Chapter 11 bankruptcy filing, court papers show.
BlockFi sold the holdings to cover expected bankruptcy expenses and isn’t planning on taking out a loan to help fund itself while under court protection, company adviser Mark Renzi said in a sworn statement filed in court Monday.
The crypto lender has started cutting costs in preparation for a restructuring, including warning two-thirds of its more than 370 workers about impending job cuts.
Read more: Crypto Lender BlockFi Goes Bankrupt in Aftermath of FTX
The company intends to reorganize in bankruptcy court rather than sell itself, but is open to any deal that maximizes recoveries for creditors, Renzi said. What users ultimately get back depends largely on whether other crypto players live up to their contracts with BlockFi and how the insolvency of FTX Group plays out, he said.
“While the debtors are hopeful, the full extent of the fallout from FTX’s collapse remains to be determined,” Renzi said. The company had “no choice” but to seek to seek court protection from creditors after FTX collapsed, he said.
BlockFi lets customers earn interest on their crypto and allows them to borrow money against those deposits. The company survived an initial shakeout in crypto tied to the collapse of hedge fund Three Arrows Capital after FTX agreed to lend it $400 million, calming users who had raced to withdraw their funds.
But the stability was short-lived. On Nov. 8, BlockFi asked to borrow $125 million under the rescue loan, but FTX didn’t send the funds. Soon after, BlockFi paused client withdrawals and cut down on other site functionality. FTX filed for bankruptcy days later.
In Renzi’s statement, part of a slate of papers typically filed on the first day of a bankruptcy, the financial adviser argued that BlockFi is in a stronger position than FTX.
“To date, I have not found any failure of corporate controls or systems integrity, and I have found BlockFi’s financial information to be trustworthy,” Renzi said. He touted its efforts to comply with regulators, including a settlement reached with the US Securities and Exchange Commission. BlockFi still owes the SEC $30 million, court papers show.
As part of the filing, BlockFi also sued one business partner for failing to turn over collateral after a loan went into default.
BlockFi will make its first bankruptcy court appearance at 11:30 a.m. on Tuesday in New Jersey.
The case is BlockFi Inc., 22-19361, U.S. Bankruptcy Court for the District of New Jersey (Trenton).
©2022 Bloomberg L.P.
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