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$50M Frozen: Federal Prosecutors Target FTX Sam Bankman-Fried’s Farmington State Bank

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The Federal prosecutors have reportedly seized nearly $50 million of Sam Bankman-Fried, former CEO of FTX, from the account of Farmington State Bank, a small institution based in the tiny town of Farmington, Washington, according to a January 23rd report.

The bank, which had previously been known for its specialization in agricultural loans to farmers, had been acquired by Alameda Research, a trading firm owned by Sam Bankman-Fried, for $11.5 million just last year.

However, it appears that the bank’s association with Bankman-Fried has now led to its undoing, as prosecutors have seized the funds as part of an effort to track down nearly $700 million worth of assets for forfeiture. SBF of FTX himself has pleaded not guilty to eight charges of fraud and is scheduled to face trial in October.

It’s worth noting that Farmington State Bank was a relatively unknown entity before SBF’s acquisition. With just three employees and no online banking or credit card services, it was the 26th-smallest bank in the US out of around 4,800. 

The bank did rebrand itself as “Moonstone Bank” just before Alameda’s investment, and its website suggested that it wanted to “support the evolution of next-generation finance,” but it didn’t mention cryptocurrency specifically.

It remains to be seen how this development will impact Alameda Research and Deltec International Group, the parent company of Farmington State Bank, which had reportedly received a $50 million loan from FTX. The situation is certainly one to keep an eye on as it unfolds.

BlockFi’s Billion-Dollar Ties To FTX 

BlockFi, the once high-flying crypto lender, has been revealed to have had over $1.2 billion in assets tied up with Sam Bankman-Fried’s FTX and Alameda Research, according to mistakenly uploaded financials. 

The company filed for bankruptcy protection in late November and had greater exposure to FTX. The unredacted BlockFi filing shows $415.9 million worth of assets linked to FTX and $831.3 million in loans to Alameda as of January 14th. 

Bankman-Fried’s firms were wrapped in FTX’s November bankruptcy, which reeled the crypto markets. Lawyers for BlockFi had previously stated that the loan to Alameda was valued at $671 million, with an additional $355 million in digital assets frozen on the FTX platform. 

However, the financial presentation was assembled by M3 Partners, an advisor to the creditor committee, and is entirely composed of BlockFi clients who are owed money by the bankrupt lender.

Argo Blockchain’s Bankruptcy Screenshot Leaked – Stakeholders To Brace For Dec 12

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Argo Blockchain, an enterprise-scale provider of cryptocurrency mining and smart contract services, will declare bankruptcy. On December 9th, Will Foxley, the content director at Compass Mining, tweeted a screenshot of the Argo Blockchain “special information for stakeholders” regarding its bankruptcy, scheduled for December 12th.

As the crypto industry heads towards deeper crypto winter, cryptocurrencies are not only feeling its effects, but even crypto-related companies are being drained of liquidity. 

2022 was a rough year for cryptocurrencies. Bitcoin had fallen by 65% from the beginning of this very year, and many other coins followed closely in its wake to suffer complete collapses, too- like Luna, which lost all of its value. 

Additionally, a number of well-known companies went bankrupt early in the year, and when November came around, two more major cryptocurrency exchanges went bankrupt-FTX and BlockFi.

However, when we look up at the Argo Blockchain shares review from the start of the year, there is a significant change of about 94.34% from January 2022 to December 9th, according to the data from Tradingview.

ARBK 2022 12 10 01 29 38
Source: Tradingview

UK Suspends Argo Blockchain Shares

Another piece of news comes on sight on the same day that after the beleaguered Bitcoin miner revealed a fall in revenue for November, the UK’s Financial Conduct Authority suspended shares of Argo Blockchain Plc, as reported by Bloomberg. However, this suspension is temporary. 

According to the report, similar decreases have been seen in American depository revenues. After a $27 million share sale looked to have fallen through in October, the mining company was told by authorities that it could be forced to close.

Argo mined 204 Bitcoin or Bitcoin Equivalents in October as opposed to 215 BTC in September 2022. The considerable rise in the “Bitcoin network difficulty” in October was the leading cause of the decline in BTC mined. 

Argo mined 198 BTC in November, compared to 204 BTC in October 2022. They all cite the same cause for the decline. As per the press release:

Argo generated this income at a Bitcoin and Bitcoin Equivalent Mining Margin of 29% for the month of November (October 2022: 32%).

However, the Bloomberg report said the company is still in discussions about financing to give the company with working capital enough for its current needs.

Nevertheless, as the crypto bear market continues, there has been an increased level of financial difficulty among Bitcoin miners. Even large mining companies such as Argo are feeling the pressure. As recently as October, they announced they would have to cease operations due to a lack of funds.

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BlockFi and SBF Lock Horns Over Robinhood Shares

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According to the Financial Times, which cited loan documents it had seen, cryptocurrency lender BlockFi, which on Monday filed for bankruptcy protection, sued Emergent Fidelity Technologies, the company owned by FTX founder Sam Bankman-Fried, on the same day for Robinhood (HOOD) shares that had been pledged to BlockFi as collateral.

According to the complaint, on November 9 an agreement was made between BlockFi and Emergent Fidelity Technologies to guarantee repayment by an unknown borrower in exchange for the collateral of an undisclosed common stock. According to the Financial Times (FT), which cited court correspondence, the borrower was Bankman-Fried’s Alameda Research.

According to two people with knowledge of the situation, Bankman-Fried continued to try to sell his Robinhood shares after entering into the collateral agreement with the asset trading firm while trying to raise money before to FTX’s bankruptcy.

BlockFi Files For Bankruptcy: Domino Effect Continues

Days after halting withdrawals due to the lingering effects of exchange FTX’s bankruptcy filing, crypto lender BlockFi filed for bankruptcy protection on Monday.

The business announced that it was seeking Chapter 11 bankruptcy protection, indicating that it wanted to restructure while carrying on with the business in the interim. The firm has around $257 million in cash in hand, claims a press statement. A Bermuda-based affiliate is likewise submitting a similar form for liquidation.

BlockFi’s executives estimated the company has more than 100,000 creditors, and they marked off the ranges in the petition for the company. According to executives, the company’s assets and liabilities ranging from $1 billion to $10 billion.

As the overall bitcoin market shrank in June, the company reduced its personnel by around a fifth. One indicator of the market’s entire value, the market capitalization, dropped from almost $3 trillion in January to $1 trillion by June.

BlockFi CEO Zac Prince stated that the company had to liquidate a significant client following the failure of Three Arrows Capital, albeit he did not specify whether or not this client was Three Arrows. Soon after, the lender received a $250 million credit facility from the cryptocurrency exchange FTX. This credit facility ultimately became a $400 million credit facility that allowed FTX US to purchase the lender.

BlockFi No Longer Lending in California, DFPI Moves to Suspend License

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Following the FTX crisis, California’s Department of Financial Protection and Innovation (DFPI) suspended cryptocurrency lender BlockFi’s license for 30 days, pending an investigation into the company’s recent decision to limit its business operations.

After Terra Luna’s disaster, the demise of FTX and the uncertainty it caused were seen as another damaging blow. The extent of the damage will depend on what details emerge over the next few days.

The day before BlockFi’s suspension order, DFPI announced that it “is investigating the apparent failure of crypto asset platform FTX.” 

Regulators for California stated in the statement that the DFPI takes this supervision duty extremely seriously and that the department anticipates all organizations providing financial services in the state to abide by local financial laws.

However, after a week of turbulence, FTX, FTX US, and Alameda filed for bankruptcy, and its CEO Sam Bankman-Fried resigned on Friday. It implies that FTX intends to restructure and emerge when the bankruptcy process is complete. The CEO also said:

Hopefully things can find a way to recover. Hopefully this can bring some amount of transparency, trust, and governance to them.

BlockFi Lender License Suspension

According to the press statement from the DFPI, BlockFi announced on November 10, 2022, through its Twitter account that it could not do business as usual due to the uncertainty surrounding the status of FTX.

The company released a statement in which it claims that the “lack of clarity” regarding FTX’s present situation, which had previously been advertised as a $250 million investment in the platform to strengthen its financial sheet, was the reason for this decision.

The DFPI said it is looking into whether BlockFi abides by all applicable regulations, including the California Financing Law, that fall within the Commissioner’s jurisdiction.

However, BlockFi notifies the DFPI that “it has ceased offering loans in California and asks clients not to deposit to its Wallet or its interest accounts.” The Commissioner told BlockFi to stop promoting or selling unqualified, non-exempt securities in the form of an interest account by February 2022, as per the press statement.

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BlockFi Halts Operations In Wake Of FTX Collapse

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BlockFi, a cryptocurrency-related financial service provider, announced via Twitter on Thursday that due to the downfall of FTX, they were incapable of conducting business as usual and had thus limited their activities.

According to their statement:

We are shocked and dismayed by the news regarding FTX and Alameda. We, like the rest of the world, found out about this situation through Twitter.

The company asserts that its top priority is the protection of its customers and assets. In response, they are pausing client withdrawals until there are more clarifications on FTX status. They also advised clients against depositing money into their wallets or Interest accounts.

Furthermore, they claimed they would provide additional updates as soon as possible. In the meantime, they also plan to stay in close contact with its clientele and other shareholders as often as possible.

Well, it’s not clear whether BlockFi has a financial stake in FTX, and it’s also not apparent whether the two companies have any other unspecified connections. 

Earlier this week, Flori Marquez, Co-founder of BlockFi, highlighted in its tweet that “BlockFi is an independent business entity.” She also clarified that they have a $400 million line of credit from FTX.US, not from FTX.com.

BlockFi In Limbo As FTX Folds

FTX, one of the largest crypto exchanges, has been facing liquidity issues and allegations of misuse of funds over the last week. It was preceded by an unexpected rise in investors withdrawing funds from FTX after learning about the exchange’s potential risks.

Additionally, the price of FTX’s FTT dropped drastically, taking other cryptocurrencies, including the two most prominent coins, Ethereum (ETH) and Bitcoin (BTC), down with it. As of Wednesday afternoon, both two major currencies hit a two-year low. 

The fall of FTX has caused panic in the crypto market. Cryptocurrencies and exchanges with exposure to FTT and FTX will continue to face crashing prices, financial difficulties, and other negative outcomes.

Therefore, investors are worried about what will happen to their assets on other exchanges because of the significant volatility and the large number of clients who are unable to withdraw their money from FTX.

However, a notice stating that trading may be paused on the platform in the next few days was put on FTX.US’s website on Thursday for users on the log-in screen. Users were instructed to cancel any open positions and were informed that withdrawals would not be affected.

Sam Bankman-Fried, the CEO of FTX, also announced on Twitter that the FTX.US exchange is “100% liquid,” which means customers may freely withdraw all of their deposited cash.

Nevertheless, reports from Bloomberg show that FTX has said they would need to file for bankruptcy- unless they get a bailout. The future of all three brands (FTX, FTX.US, and FTX International) is uncertain at the moment.

Related Reading | TRON-Centric Tokens Inflated Prices Comes At The Expense Of FTX Users

3AC Files Chapter 15 Bankruptcy To Prevent Asset Seizure

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Singapore-based crypto hedge fund Three Arrows Capital, 3AC has filed for Chapter 15 bankruptcy, to prevent creditors from seizing the firm’s assets in the US, Bloomberg reported.

According to the court filings, the law firm Latham & Watkins on the behalf of 3AC filed the bankruptcy petition in New York on 1st July.

The hedge fund, founded by former Credit Suisse traders Zhu Su and Kyle Davies, were valued at an estimated $10 billion in assets at one time, blockchain analytics firm Nansen revealed.

Ironically the same fund that bet big on everything from Bitcoin to the ill-fated Luna tokens has become the latest victim of a $2 trillion market wipeout that left it with huge unpaid debt on its borrowings.

Earlier this week, a British Virgin Islands court ordered the liquidation of 3AC for its failure of repaying the $80 million it owed to digital asset exchange Deribit. 

Not only that, Three Arrows’ borrowings have caused headaches to many crypto lenders. In late June, Toronto-listed crypto lender Voyager Digital said that it could lose over $650 million in loans it offered to the crypto investment firm.

Things took a serious turn when Voyager announced that it was temporarily suspending withdrawals and trading on its platform while adding that it is “actively pursuing all available remedies for recovery from 3AC”.

BlockFi, another big crypto lender, said on Friday it had incurred nearly $80 million in losses due to the Three Arrows collapse.

This prompted BlockFi to sign a deal with FTX to inject fresh financing in exchange for a $240 million acquisition.

3AC Under MAS Scanner

Three Arrows is also facing regulatory scrutiny in Singapore. The Monetary Authority of Singapore [MAS] reprimanded the firm this week for providing false information and an alleged breach of assets under management between July 2020 to September 2020, and between November 2020 to August 2021.

The financial watchdog is investigating further breaches by the firm of its rules in light of “recent developments which call into question the solvency of the fund managed” by Three Arrows, it said Thursday.

BlockFi Axes 20% Of Its Staff Citing “Dramatic Shift In Macroeconomic Conditions”

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Crypto lending firm BlockFi has announced slashing 20% of its workforce as digital asset firms grapple to face the bloodbath. This year, cryptocurrency markets have sunk to a new low on the 13th of June.

Sharing the news CEO Zac Prince tweeted that BlockFi has been affected by the “dramatic shift in macroeconomic conditions,” which have had a “negative impact” on growth.

Conceived in 2017, BlockFi has grown dramatically over the years, reaping benefits from low borrowing costs and the surge in crypto prices. Prior to the latest layoffs, the firm had expanded from 150 employees at the end of 2020, to more than 850.

Now, with the global market cap tanking below $1 trillion to $977 billion, around a 12 % fall since yesterday, almost every top coin has lost half or more than their previous peaks.

While this massive monetary downturn can be attributed to a host of factors, including the ongoing Russia-Ukraine war, rising inflation figures, and worsening macroeconomic conditions have had a ripple effect on the crypto job landscape.

Crypto entities across the board have been forced to cut costs, as investors are increasingly opting out of the riskiest assets, pulling down trading volumes.

Two weeks ago, New York-based crypto exchange Gemini, said it would be laying off 10% of its workforce Crypto.com too followed the same route by announcing a staff reduction of 260 people.

Unlike BlockFi, A leading Crypto Firm Refused To Follow Suit

The most recent example was one of the biggest players in the crypto lending space- Celsius, pausing all withdrawals and transfers between accounts, due to the “extreme market conditions.”

However, there is one crypto firm that has refused to either slow down hiring or lay off employees. Speaking at the Consensus 2022 conference last week, Binance CEO Changpeng Zhao a.k.a CZ said the firm has enough resources to expand its hiring and even focus on new acquisitions.

“We have a very healthy war chest; we in fact are expanding hiring right now,” Zhao said. “If we are in a crypto winter, we will leverage that, we will use that to the max,” he said, adding that the trading platform is “kicking into high gear in terms of M&A activity.”

BlockFi detects unauthorized access at one of its third-party vendors; more details

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Crypto financial firm BlockFi confirmed a data breach incident at one of its third-party vendors, Hubspot. As per the announcement, the hackers gained illegal access to the lending platform’s data on Mar. 18, which was hosted on its client relationship management platform Hubspot.

Hubspot has confirmed that an unauthorized third-party gained access to certain BlockFi client data housed on their platform.

As a third-party vendor for BlockFi, Hubspot stores user data such as names, email addresses, and phone numbers. In a situation like this, bad actors often target such information for conducting phishing attacks and gaining access to accounts through user-provided passwords.

BlockFi clarifies that personal data were “were never stored on Hubspot”

BlockFi revealed that at the moment it is working together with Hubspot to understand the overall impact of the data breach. While the exact details of the incident are not specified, the crypto lender reassured users that extremely sensitive data such as passwords, government-issued IDs, and social security numbers “were never stored on Hubspot.”

The firm further recommended four methods to help users protect their online presence from bad actors such as creating strong passwords, two-factor authentication [2FA], allowing only listing trusted applications, and being more vigilant against scammers.

BlockFi then ended the post by acknowledging that time is of the essence and the team is speeding up their investigations to identify the extent of the breach and noted that “additional information will be emailed to all impacted clients in the coming days.”

Investors were further asked to keep tabs on future communication, especially with regards to requesting/changing personal details including passwords and wallet addresses.

A few months ago, a similar incident took place in one of the largest cryptocurrency exchanges -Crypto.com. CEO Kris Marszalek in an interview with Bloomberg informed that the exchange suffered a security breach that affected 400 accounts in the process.

Marszalek said the platform “very quickly stopped” unauthorized withdrawals and restrictions were lifted within 14 hours. Obviously, it’s a great lesson and we are continuously strengthening our infrastructure,” Marszalek told. “Given the scale of the business, these numbers are not particularly material and customer funds were not at risk.”

BlockFi to shell out $100M to SEC for violating these rules

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Crypto lending platform BlockFi Inc. will have to pay $100 million as part of its settlement for SEC and other state regulators’ accusations that it illegally offered a product that promises customers high-interest rates to lend out their digital assets, according to sources familiar with the matter.

Bloomberg which first broke the news also revealed that the New Jersey-based firm will pay a $50 million fine to the SEC and another $50 million to various states, said the people asking to remain anonymous because the deliberations are private.

The penalties of this size are among the toughest levied on a cryptocurrency firm that also comes in the backdrop of a U.S. clampdown on the industry. The SEC and various state investigators have increased scrutiny on several companies, including Celsius Network and Gemini Trust Co. that have gained immense popularity with retail investors for paying yields sometimes exceeding10%.

As part of its deal with regulators, BlockFi will no longer be able to open new interest-yielding accounts for most Americans. Speaking on the development, BlockFi spokesperson Madelyn McHugh stated,

“We have been in productive ongoing dialogue with regulators at the federal and state level. We do not comment on market rumors. We can confirm that clients’ assets are safeguarded on the BlockFi platform and BlockFi Interest Account clients will continue to earn crypto interest as they always have.”

BlockFi and Co. facing the heat

Crypto-lenders, in particular, have come under the prying eyes of the regulators as they have attracted several billions of dollars in deposits by promising yields much higher than those available through traditional savings accounts.  

A representative of Gemini Trust said the firm was cooperating with an “industry-wide inquiry” into crypto-yield products. Celsius also stated that it was working with regulators to “operate in full compliance with the law”.

Downplaying reports of SEC going after the firm, Voyager spokesman said it was normal to be in ongoing communications with financial watchdogs. The SEC as of now hasn’t accused any of the above companies of wrongdoing but the fear remains.

The top agency has separately issued a warning to Coinbase Global Inc., the biggest U.S. crypto exchange, against going forward with a lending product, prompting the firm to halt the project last September.

BlockFi replaces Christopher Giancarlo aka “Crypto Dad” from its Board

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Prominent financial services company, BlockFi has replaced Christopher Giancarlo, the former Commodity Futures Trading Commission [CFTC] chair. Giancarlo, who was popularly known as “Crypto Dad,” is being succeeded by Ellen-Blair Chube who joined BlockFi’s Board of Directors.

Following the development, the exec was quoted saying,

“I was immediately struck by the caliber of leadership and strength of retail and institutional product offering at BlockFi. So many of the crypto-firsts have been pioneered by this organization, and I am excited to count myself as part of the Board that will support BlockFi’s mission of financial inclusion, continued innovation and the next tranche of industry firsts that are to come.”

Giancarlo’s unexpected exit from BlockFi

The official announcement did not mention the reason behind Giancarlo departure after being in the position for only four months. However, the company revealed that the former commissioner will continue to offer strategic counsel to the company in an advisory role. Chube, on the other hand, is a Managing Director and Client Service Officer at the global financial services firm, William Blair. According to reports she has nearly two decades of expertise in strategic leadership across government and the private sector for the benefit of clients on the buy and sell-side.

Giancarlo had previously served as previously worked for five years as the chair of the independent federal agency that regulates commodity futures and options markets in the US. He earned his nickname as “Crypto Dad” for his early embrace of cryptocurrency assets and overseeing the rollout of regulated Bitcoin ETF. After the stepping down, he revealed looking forward to continuing to advise the “impressive group of leaders,” and added,

“The best is yet to come for BlockFi and I know that as crypto assets take a more prominent role in both retail and institutional investors’ strategies, BlockFi will be there to lead the way.”