Latest Headache for FTX Creditors: DOJ Seizes Robinhood Stock Tied to SBF
FTX attorneys had previously tried to lay their own claims to the outstanding shares
rblfmr/Shutterstock modified by Blockworks
A three-way fight between the FTX’s bankruptcy saga’s most influential players has been put on hold.
US prosecutors on Wednesday moved to take custody of roughly 56 million Robinhood shares that had become enmeshed in the insolvency of the crypto exchange Sam Bankman-Fried founded, according to court filings and multiple reports.
The shares, worth north of $460 million by Wednesday’s after-hours trading session, are at the heart of an onerous ownership dispute between bankrupt crypto lender BlockFi, Bankman-Fried and one of FTX’s most substantial personal creditors, Yonathan Ben Shimon, a wealthy individual investor who has invested in a host of fintech and crypto startups. The equities have plunged since they’ve been stuck in legal limbo.
The government’s move is the latest response to a number of bids undertaken by attorneys for FTX and its legal counterparties to litigate — and, in several cases, re-litigate — the ownership of assets that had been shifted and shunted between FTX, Alameda and outsiders.
Robinhood’s shares should not be deemed a part of FTX’s bankruptcy holdings, The Department of Justice told US Bankruptcy Judge John Dorsey on Wednesday, Reuters reported.
Industry participants reacted to the news with the same sort of derision and skepticism that has become the norm with each incremental update to the bankruptcy.
The maneuver by prosecutors on Wednesday to freeze and lay claim to the hundreds of millions of dollars of outstanding Robinhood stock adds an unexpected new wrinkle to sorting out what had already been a thorny and convoluted process. Bankruptcy attorneys previously told Blockworks they expect FTX’s proceedings to take at least a year to play out.
And, at least for now, it appears to leave BlockFi and Shimon in the lurch for the foreseeable future. They’re now facing a separate type of bankruptcy mechanism, known as a forfeiture proceeding, to make any headway in what they say would make them whole — or, at least, something close to it.
Bankman-Fried had originally snapped up a 7.6% stake in Robinhood in May, allegedly, and at least in part, using Alameda funds to do so.
FTX’s legal team has previously argued that the shares, which have been under the custody of the brokerage ED&F Man Capital Markets, should be frozen and potentially tapped as a source of liquidity to pay back the exchange’s many, many creditors. There’s also an ongoing FTX bankruptcy case in the Bahamas, in addition to the one playing out in the US.
And BlockFi, the bankrupt crypto lender that had already been having a tumultuous 2022 prior, sued FTX in late November. The company alleged at the time that Bankman-Fried had put up his Robinhood shares as collateral for a loan BlockFi originated to bail out Alameda Research.
Late last month, FTX — now run by the veteran insolvency specialist John Ray, a former Enron executive — asked the court to freeze the shares, worth some $450 million at the time, in an attempt to bat down BlockFi’s claim.
Get the news in your inbox. Explore Blockworks newsletters:
- The Breakdown: Decoding crypto and the markets. Daily.
- 0xResearch: Alpha in your inbox. Think like an analyst.
- Empire: Crypto news and analysis to start your day.
- Forward Guidance: The intersection of crypto, macro and policy.
- The Drop: Apps, games, memes and more.
- Lightspeed: All things Solana.
- Supply Shock: Bitcoin, bitcoin, bitcoin.
