In a few tweets on Sunday, Ripple General Counsel Stuart Alderoty blamed the US Securities and Exchange Commission for the imminent collapse of BlockFi, establishing a trend of the regulation harming customers.
Alderoty claims that it is unclear if the SEC performed its due diligence to ensure that the cryptocurrency lender could pay the $100 million fine it was fined as part of a settlement agreement in February and that it also failed to establish the source of this financing. The $250 million loan BlockFi got from FTX in June, which was documented in FTX’s bankruptcy filings, is used by the Ripple GC to support its theory that BlockFi’s deal with the SEC compelled it to team up with FTX.
According to the documents, FTX made the loan using FTT, a highly illiquid exchange token.
Customers of BlockFi run the danger of losing their investment because the lender has ceased operations while FTX is going through bankruptcy.
Remarkably, Ripple CTO David Schwartz fueled speculation that BlockFi stored client funds on FTX in exchange for the line of credit by speculating on Alderoty’s ideas and fueling the fires of those speculations.
“… BlockF [BlockFi] borrowing funds from FTX for fines may be connected to BlockFi assets being stored at FTX,” Schwartz tweeted. “In other words, the SEC may have made BlockFi so weak financially that it had no choice but to store crypto at FTX to continue operating, possibly the cause of their collapse.”
It’s important to note that BlockFi refuted these assertions four days earlier in response to frequently asked questions. Nevertheless, it acknowledges that it is significantly exposed to the defunct cryptocurrency exchange.
“The rumors that a majority of BlockFi assets are custodied at FTX are false,” the crypto lender wrote. “However, as shared, we have significant exposure to FTX and associated corporate entities that encompasses obligations owed to us by Alameda, assets held at FTX.com, and undrawn amounts from our credit line with FTX.US.”
More Information About the Context
Remarkably, the cryptocurrency lender reached a $100 million settlement with the SEC on its interest-yielding product in February. The exact date that BlockFi made the payment is unknown, although reports and SEC filings show that BlockFi did make the payment.
Following the collapse of Terra, the company claimed it needed a $250 million line of credit from FTX in June to liquidate a sizable client, who many believe to be Three Arrows Capital. Additionally, it received a $400 million line of credit from FTX.US in July. This was done in response to the market volatility following the collapse of Celsius and 3AC, and it included an option for the exchange to buy out the lender for $240 million, subject to operational circumstances.
However, it is unclear whether the SEC fine caused the crypto lender’s current situation, which could potentially lead to its filing for bankruptcy protection.
These all appear when the crypto community, particularly the XRP community, which is more familiar than most with what it is like to be the target of SEC enforcement, criticizes the SEC’s actions. Alderoty claimed, as was previously reported, that Gary Gensler, the head of the SEC, should also be investigated for the FTX collapse. He claimed that the SEC’s strategy under Gensler was to coerce crypto companies into secret agreements.
According to a report, the crypto community has alerted Congress to connections between Gensler and FTX creator Sam Bankman-Fried following the collapse of FTX.