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The US government is embroiled in a contentious, multi-jurisdictional legal battle over the ownership of hundreds of millions of dollars of assets tied to the collapse of Sam Bankman-Fried’s crypto empire.
The Justice Department said on Wednesday it had decided to seize millions of shares of Robinhood, the popular stock trading app, whose ownership is disputed by several parties, including Bankman-Fried himself, its bankrupt crypto exchange FTX and another bankrupt crypto company.
“We believe these assets are not the property of the bankruptcy estate or fall within the exceptions … of the bankruptcy code,” Seth Shapiro, a Justice Department attorney, said in a briefing. bankruptcy hearing in Delaware on Wednesday.
Four separate entities claimed the roughly 56 million shares, worth about $460 million. The new management of FTX, which is trying to recover funds for investors and clients of the bankrupt platform, has sought to wrest control of the shares from an Antigua-based holding company 90% owned by Bankman-Fried.
In May 2022, months before his businesses collapsed and he was accused of defrauding his clients and investors, Bankman-Fried acquired a nearly 8% stake in Robinhood through a holding company that he created with FTX co-founder Gary Wang. This company, Emergent Fidelity Technologies, borrowed over $546 million from crypto hedge fund Alameda Research, according to a Bankman-Fried affidavit filed in December.
Bankman-Fried claims ownership of the shares, seeking a source of payment for legal fees, according to FTX. Also claiming that Robinhood’s actions are Bankrupt crypto lender BlockFi and an individual FTX creditor.
Due to the competing claims, FTX filed a petition earlier this month with the Delaware Bankruptcy Court to keep the assets frozen until the court “can resolve the issues in a manner that is fair to all creditors.” debtors”.
During Wednesday’s hearing, FTX attorney James Bromley said that while “we certainly believe we have rights with respect to these assets…we are currently in agreement with the U.S. government and the law enforcement officials to take such action”.
Robinhood declined to comment on Thursday. Company CEO Vlad Tenev told CNBC last month that he was “not surprised” the stake was one of the most valuable assets on FTX’s books, as it is shares of a public company.
“We don’t have a lot of information that you don’t have,” Tenev told CNBC. “We’re just watching this unfold and…it’s going to be locked in bankruptcy proceedings, most likely for some time.”
The collapse of FTX sparked a panic in the digital asset ecosystem, prompting some companies to halt withdrawals and in some cases file for bankruptcy themselves.
On Thursday, further evidence of the contagion emerged when Silvergate Capital, a crypto-focused bank, said total digital asset customer deposits fell 68% in the last quarter of 2022, to just 3. .5 billion dollars. As of December 31, about $150 million of Silvergate’s deposits came from customers who filed for bankruptcy.
Silvergate shares fell nearly 40% on Thursday morning. The bank announced that it would lay off 40% of its staff, or about 200 people.
“In response to the rapid changes in the digital asset industry during the fourth quarter, we have taken proportionate steps to ensure that we maintain liquidity to meet potential deposit outflows,” CEO Alan Lane said Thursday. when calling for results.
Lane said the bank sold $5.2 billion in debt securities, resulting in a loss of $718 million for the quarter.
U.S. prosecutors accuse Bankman-Fried of stealing funds from FTX clients to cover Alameda losses, as well as investing in other businesses, subsidizing his luxury lifestyle and making huge campaign donations to Democrats and Republicans in the United States.
He pleaded not guilty to eight federal counts of fraud and conspiracy on Tuesday, and remains under arrest at his parents’ home in Palo Alto, Calif.
Two of his former associates, however, became star witnesses for the prosecution. Both pleaded guilty to fraud, directly contradicting Bankman-Fried, and are cooperating with prosecutors for the Southern District of New York.
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