(Kitco News) -
Sam Bankman-Fried, the former CEO of bankrupt crypto exchange FTX, filed a court action on Thursday to block debtors from taking his 56 million shares of brokerage firm Robinhood.
Bankman-Fried’s lawyers claimed in the filing that the shares do not belong to FTX, Alameda or any of their subsidiaries, and that he needs the shares to fund his legal expenses.
“The FTX Debtors seek to disregard the separate existence of a corporation that is not a party to this action and encumber hundreds of millions of dollars’ worth of assets to which they have no legal claim,” they wrote. “The withholding of costs necessary to an adequate criminal defense can constitute irreparable harm […] Conversely, the FTX Debtors face only the possibility of economic loss.”
Bankman-Fried’s filing comes in response to Wednesday’s decision by U.S. prosecutors to seize the disputed Robinhood shares. U.S. attorney Seth Shapiro told FTX bankruptcy Judge John Dorsey that the Justice Department does not consider the Robinhood shares to be part of the bankruptcy estate, and that the competing claims to the shares made by bankrupt crypto firm BlockFi, FTX, Antigua liquidators and Bankman-Fried himself should instead be worked out in a forfeiture proceeding.
At the time, FTX attorney James Bromley conceded that it was an “open question” who owns the Robinhood shares.
Bankman-Fried purchased the 7.42% stake in Robinhood through Emergent Fidelity Technologies Ltd using funds he borrowed from Alameda Research. Bankman-Fried owned 90% of Emergent, with former FTX cofounder Gary Wang owning the remaining 10%.
On Dec. 22, FTX asked a U.S. court to freeze the Robinhood shares to block BlockFi’s claim on them after the bankrupt crypto lender filed a motion to sue Emergent for the shares, arguing that Alameda had pledged the stock to back $680 million in loans promised to BlockFi.
“BlockFi is entitled to use and possession of the Collateral under the Pledge Agreement because Emergent defaulted on its obligations thereunder and failed to cure the default,” they wrote in the motion. “The Collateral is property of the BlockFi bankruptcy estates and is valuable and beneficial to the BlockFi bankruptcy estates.”
BlockFi was one of the first victims of the ongoing contagion in the crypto ecosystem that was unleashed in the wake of the Nov. 11 bankruptcies of FTX and sister fund Alameda Research. Shortly afterward, BlockFi announced that they had “significant exposure” to FTX, including “obligations owed to us by Alameda, assets held at FTX.com, and undrawn amounts from our credit line with FTX.US.” BlockFi was forced to declare its own bankruptcy on Nov. 28.
At the time of writing, Robinhood is trading at $8.06 per share, pegging the total value of the disputed shares at $453 million.
