BlockFi’s UCC accuses CEO Zac Prince of defrauding customers and committing undue excesses, delaying progress. Prince allegedly breached his fiduciary duty, allowing fraudulent transfers and liquidating client holdings. Creditors propose to reduce BlockFi’s exclusivity period, or convert its bankruptcy to Chapter 7.
BlockFi is a bankrupt cryptocurrency lender, and collateral victim of the historic FTX collapse last November.
BlockFi’s Unsecured Creditors Committee (UCC) has launched court proceedings accusing BlockFi CEO Zac Prince of defrauding customers and over-participating while delaying the way forward.
The UCC filed documents with the United States District Court of New Jersey today charging Prince and BlockFi with undue excess through their debtors’ exclusivity motion.
CEO Zac Prince and His Colleagues Indicted for Personal Enrichment
The exclusivity motion granted BlockFi management permission to lead the internal management of the bankruptcy due to their knowledge of the company.
The committee argues that BlockFi’s motion will not lead to a “principled or quick conclusion.” Instead, it appears to enrich BlockFi experts at the expense of creditors while the company earns no revenue.
“It is time for the Debtors’ unsecured creditors to finally know what BlockFi really was, who Zac Prince really is, how much he personally benefited from the company, and what he and some of his colleagues were doing (in juxtaposition to what they promised to customers) when no one was looking.”
BlockFi filed for bankruptcy on November 28, 2022, citing exposure to FTX. It lent crypto deposits, among other ventures, to lender Celsius Holdings. According to BlockFi’s bankruptcy filing, the company owes money to more than 100,000 creditors, with liabilities ranging from $1 billion to $10 billion.
When FTX filed for Chapter 11 bankruptcy on November 11, BlockFi followed suit seventeen days later, citing a $1 billion hole in its balance sheet as a result of exposure to the discredited exchange and its sister company, trading firm Alameda Research.
While launching bankruptcy proceedings, BlockFi also began suing former FTX CEO Sam Bankman-Fried for allegedly pledging Robinhood shares as collateral.
New UCC Waste Minimization Plan
Unless the court takes action, Prince and BlockFi will deplete funds owed to creditors, the UCC said.
Consequently, they have asked the court to appoint a Chapter 11 trustee because Prince allegedly breached his fiduciary duty by allowing $900 million in fraudulent transfers. In addition, BlockFi liquidated clients’ holdings against prior pledges, exposing them to undue tax risk.
The company also settled the case and violated federal law by requesting a restructuring plan too soon. It also lied about its actions and the existence of a Creditors Committee Plan.
In lieu of a Chapter 11 plan, the creditors propose that the court could reduce the exclusivity period of BlockFi’s motion. This is because the company has not advanced in the elaboration of a significant plan.
A third alternative would see the judge convert BlockFi’s bankruptcy to Chapter 7. While under Chapter 7 proceedings, the company must show that its current efforts will not erode the distributions it owes to the parties.
Zac Prince has yet to comment on the allegations.
By Audy Castaneda
