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BlockFi Files for Bankruptcy; Miami to Sever Ties With FTX
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Good day and welcome to WSJ Pro Bankruptcy's Daily Briefing. It's Tuesday, Nov. 29. Cryptocurrency lender BlockFi Inc. followed FTX into bankruptcy in one of the first contagion cases brought down by the failure of the crypto exchange. Miami-Dade County has asked the judge in the FTX bankruptcy case to terminate the 19-year, $135 million deal so it can find a new sponsor for the arena where the NBA’s Miami Heat play. And here is why it is probably too soon for that #RIPTwitter hashtag.
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BlockFi halted withdrawals and limited activity on its platform in November after saying it was affected by the downfall of FTX.
PHOTO: SILAS STEIN/ZUMA PRESS
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BlockFi files for bankruptcy. Cryptocurrency lender BlockFi Inc. filed for chapter 11 on Monday, following FTX into bankruptcy and spotlighting the contagion effects that the failure of the crypto exchange has unleashed.
BlockFi blamed its chapter 11 filing on the downturn in cryptocurrency prices this summer and this month’s failure of FTX, a big exchange with ties throughout the largely unregulated industry. FTX’s affiliated trading firm, Alameda Research, defaulted on $680 million owed to BlockFi earlier this month, the firm disclosed in court papers.
Bankruptcy gives BlockFi a chance to formulate a repayment plan for creditors and get back what it can from FTX, though any potential recoveries are a long way off. BlockFi said it is hopeful it can quickly exit chapter 11 and provide a recovery for customers, though the firm’s financial adviser, Mark Renzi, acknowledged in a court filing the “full extent of the fallout from FTX’s collapse remains to be determined.”
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BlockFi owes $30 million to SEC. Cryptocurrency lender BlockFi, which filed for bankruptcy Monday still owes $30 million to the Securities and Exchange Commission stemming from an earlier enforcement action against the company.
BlockFi made the disclosure as part of its voluntary petition for bankruptcy. The company is supposed to pay a $50 million fine to the SEC through five installments, and has two years to pay the full amount, according to its February 2022 settlement. The company appears to have paid the first two installments, totaling $20 million.
Companies and individuals typically can't extinguish fines through bankruptcy—but that doesn't mean the SEC always gets paid. The SEC has historically collected about 55% of the penalties levied against wrongdoers, The Wall Street Journal reported in 2019.
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Tech investor Peter Thiel recently said that bitcoin represented a ‘revolutionary youth movement.’
PHOTO: MICKEY PIERRE-LOUIS FOR THE WALL STREET JOURNAL
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BlockFi is a black eye for Mr. Thiel. The bankruptcy filing of cryptocurrency lender BlockFi Inc. is a black eye for one of the industry’s biggest boosters, tech investor Peter Thiel.
A venture-capital firm spun out from Mr. Thiel’s Thiel Capital, Valar Ventures, owned 19% of BlockFi’s shares, according to documents filed with the bankruptcy court.
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That ranks Valar among BlockFi’s largest shareholders. Earlier this year, Vauld Group, another cryptocurrency lender that Valar backed, froze customer withdrawals and filed for protection from its creditors in Singapore.
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BlockFi Inc., 11:30 a.m. ET: The cryptocurrency lender has its first day hearing before Judge Michael Kaplan in New Jersey. The company filed for bankruptcy on Monday after FTX’s downfall that put a potential deal into jeopardy.
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Getting its name on an NBA arena beamed FTX into millions of households around the world.
PHOTO: EVA MARIE UZCATEGUI/BLOOMBERG NEWS
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Miami to break ties With FTX. Miami-Dade County has asked the judge in the FTX bankruptcy case to terminate the 19-year, $135 million deal so it can find a new sponsor for the arena where the NBA’s Miami Heat play. The county’s lawyers argue FTX has breached terms of the deal by running afoul of laws governing financial exchanges and the sooner the agreement ends, the smaller Miami-Dade’s claim will be in the bankruptcy case.
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“These breaches appear to have been repeated, recurring and incurable.”
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— Lawyers for Miami-Dade County
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Advisory firm M3 hires Kamlani. Kunal S. Kamlani has joined advisory firm M3 Partners LP as a senior managing director. Mr. Kamlani led mergers and acquisitions, assets divestiture and financing at hedge fund ESL Investments before joining M3. Before that, he was a senior manager at Prestige Cruise Holdings, parent company of Oceania Cruises and Regent Seven Seas Cruises. Mr. Kamlani had helped turn around operations in companies in financial services, global leisure and hospitality, retail, real estate and home services sectors. M3 is a New York-based independent corporate advisory firm with advisory roles in Sears Holdings Corp., Barneys New York Inc. and JCPenney, among others. —Jodi Xu Klein
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Elon Musk is showing that he is willing to dedicate resources to Twitter to save his reputation as a brilliant and unconventional businessman.
PHOTO: JAKUB PORZYCKI/ZUMA PRESS
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Twitter is too Musk to fail. It is probably too soon for that #RIPTwitter hashtag. True, major advertisers are leaving the platform or pausing their business, thousands of employees have left, harebrained initiatives abound and offensive content is rampant. But if Elon Musk’s first few weeks running Twitter have been a train wreck, few people seem able to look away.
The result is an all-time high in users, according to Mr. Musk. Wall Street was estimating Twitter would end the year with 256 million of them; Mr. Musk’s unaudited disclosures as of Nov. 20 imply it is currently on the path to hitting well over 266 million by the end of the year. That would make for nearly 23% growth over the fourth quarter of 2021—roughly in line with its growth rate in 2019 before the pandemic and 10 percentage points higher than in 2021.
Obviously those numbers are meaningless if the platform can’t survive financially. Mr. Musk’s suggestion earlier this month that bankruptcy is a possibility set off alarm bells.
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John Williams, president of the Federal Reserve Bank of New York.
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Inflation fight could last. New York Fed President John Williams said he expects inflation pressures to recede over the next year but cautioned the central bank will continue to have its work cut out because prices may decelerate to levels still above the Fed’s 2% target.
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“There is still more work to do.”
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— John Williams, New York Fed President
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Yield curve hints at recession. Yields on longer-term U.S. Treasurys have fallen further below those on short-term bonds than at any time in decades, a sign that investors think the Federal Reserve is close to winning its inflation battle regardless of the cost to economic activity.
A scenario in which short-term yields exceed long-term yields is known on Wall Street as an inverted yield curve and is often seen as a red flag that a recession is looming.
Yields on Treasurys largely reflect investors’ expectations for what short-term interest rates set by the Fed will average over the life of a bond. Longer-term yields are generally higher than shorter-term yields because investors want to guard against the risk of unexpected inflation and rate increases.
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