State Commission Sued by BlockFi for Failing to Accept its Surrendered License
The insolvent crypto exchange intends to renounce its license. However, officials assert that BlockFi claims could be a costly court proceeding.
Jorge Perez, the Connecticut Banking Commissioner, has been sued by bankrupt cryptocurrency lender BlockFi in the United States Bankruptcy Court of New Jersey.
The move follows the consistent refusal by the state regulator to accept an offer by BlockFi to forfeit its Connecticut money transmitter license that it has held since April 2020.
BlockFi Challenges Connecticut Banking Commission for Insisting on Administrative Process
Instead, the regulator advocates for an administrative process, meaning that the organization would be required to participate in another court proceeding where it represents itself.
BlockFi is one of the organizations impacted by the late last year collapse of FTX. The creditor committee disclosed a $1.2 billion exposure to the exchange and Alameda Research, its venture capital arm.
Further, the digital asset lender revealed 227 million dollars in deposits that lacked insurance from FDIC. At the time, the deposits were held at the current nonoperational Silicon Valley Bank.
$1.2 Billion Exposure Revealed to FTX by BlockFi Creditor Committee Advisor
BlockFi, the currently insolvent crypto lending organization, possesses more than 1.2 billion dollars in assets associated with Almeda Research and FTX that were established by Sam Bankman-Fried, a fallen crypto entrepreneur.
According to a Tuesday report by CNBC, the information is based on findings that M3 Partners gathered and uploaded. M3 Partners serves as the BlockFi creditor committee’s advisor. The financial presentation shows that by January 14, the digital asset lender possessed assets worth $415.9 million tied up with FTX. Additionally, it had $831.3 million tied up with its sister organization.
State Regulator Imposes Series of Hurdles in a Cease Notice
In November, BlockFi filed for Chapter 11 bankruptcy protection. Afterward, it was informed of the need to forfeit its Connecticut money transmitter license. Despite attempting to submit it in December, the regulator failed to offer a response.
Instead, in February 2023, a notice was sent to the organization claiming that its license was being canceled. Besides, the notice showed it was compelled to stop executing business with the state’s residents. This is irrespective of the idea that the matter was unresolved by the time of notice issuance by the Connecticut Department of Banking. Following its filing for bankruptcy in November, BlockFi ceased its operations.
After receiving notices, the organization attempted to evade an additional court proceeding by proposing to forfeit its money transmitter license. Since March, one of the attorneys has made numerous calls with a staff counsel at the Connecticut banking department.
Additionally, the attorney has been alerted that the organization would need to pay a fine amounting to $1 million if it wanted to avert a court proceeding. The situation has resulted in some concerns.
Suing Connecticut Banking Commission Subjects BlockFi’s Estate to Huge Expense
The charge against the Connecticut banking commissioner reveals that BlockFi must maintain the Connecticut council with experience in lawsuits linked to the banking department. The organization has claimed that the move will likely come at a major expense to the estate. Besides the time and additional resources the directors will need to handle the court case, this is.
The three biggest creditors are owned $1 billion by BlockFi. This excludes the numerous smaller and retail investors intending to withdraw their money. Earlier this year, approval to sell the remainder of the assets was offered to make customers whole again.
A major question that arose concerned the insistence by the government to drag the crypto exchange into an expensive and protracted court case concerning a license it has claimed it has no intention to keep.
BlockFi’s Submissions Criticizes Self-Aid Interventions By Regulator
According to BlockFi’s complaint, the self-aid interventions by the department to cancel the license and evaluate monetary regulations are meant to chase its monetary interests and fail to enhance the safety or welfare of the public.
The lawsuit claimed that the primary goals of the cryptocurrency organization entail seeking to cease court proceedings and making a date to develop a restructuring strategy and proving that the department acted against Section 525 by terminating the organization’s license.
Perez has already received a summon, and BlockFi intends to argue in favor of the motion to prevent court proceedings. However, the administrative proceeding that it has been attempting to evade is planned to start on July 20.
Editorial credit: Formatoriginal / Shutterstock.com
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