Bankrupt Crypto Giants BlockFi and FTX Settle for Nearly $875 Million

In addition to FTX’s settlement with BlockFi, crypto exchange ShapeShift has also agreed to a settlement with the SEC.

FTX has agreed to pay up to $874.5 million to settle disputes with BlockFi, a move that resolves BlockFi's billion-dollar claims against FTX and involves FTX waiving several millions in counterclaims against BlockFi. Meanwhile, Spanish authorities have set their sights on Worldcoin, ordering it to stop its personal data collection as serious privacy concerns started surfacing. Additionally, ShapeShift has settled with the SEC for $275,000 over allegations of operating as an unregistered securities exchange.

FTX Agrees to Settlement With BlockFi

Bankrupt crypto firms BlockFi and FTX have reached a preliminary agreement to settle their disputes, with FTX agreeing to pay up to $874.5 million to BlockFi. This settlement, revealed in a court filing dated Mar. 6, awaits approval by U.S. Bankruptcy Judge John Dorsey in Wilmington, Delaware. The agreement will resolve BlockFi’s billion-dollar claims against FTX and involves FTX waiving several millions in counterclaims against BlockFi.

The settlement sum includes a $185.2 million claim related to BlockFi customer assets on and a $689.3 million claim against Alameda Research for loans provided by BlockFi. Of the total settlement, $250 million will be considered a "secured claim," ensuring BlockFi receives priority payment after FTX's bankruptcy resolution. The balance is dependent on FTX's capacity to settle its own customer and creditor debts.

BlockFi's bankruptcy pointed out that early mediation will help reduce litigation expenses and direct funds towards customer reimbursements. They see this agreement as a very positive outcome for both BlockFi and its clients.

BlockFi filed for Chapter 11 bankruptcy protection on Nov. 28, 2022, after being affected by the sudden collapse of FTX that same month, leading to a series of legal battles between the two companies throughout 2023. BlockFi's claims against FTX included over $1 billion, stemming from a $400 million credit line and nearly $900 million loaned to Alameda Research, mainly secured by FTX’s token, FTT, which plummeted by almost 99% after FTX's very dramatic downfall.

In its legal confrontations, BlockFi also targeted a holding company associated with Sam Bankman-Fried to recover 56 million in Robinhood shares, which was allegedly pledged as collateral for loans to Alameda Research. BlockFi's financial troubles extend to debts of up to $10 billion owed to more than 100,000 creditors, including $1 billion to its top three creditors and $220 million to the now-bankrupt crypto hedge fund, Three Arrows Capital.

Despite these challenges, BlockFi was still able to emerge from bankruptcy in October of 2023, and established a wallet system to facilitate customer withdrawals. While plans are in place for customers using interest-bearing accounts to also withdraw assets in 2024, specific payout details have not been revealed just yet.

Spanish Authorities Clamp Down on Worldcoin

Meanwhile, the Spanish Agency for the Protection of Data (AEPD) issued a temporary order on Mar. 6, demanding Worldcoin, founded by OpenAI co-founder and CEO Sam Altman, to completely stop the collection and processing of personal data in Spain for three months. This decision is part of an investigation into complaints about the inability of users in Spain to withdraw consent and allegations of data collection from minors. The AEPD is especially concerned about the collection and processing of special categories of personal data and has also ordered the blocking of data already collected.

Worldcoin, which aims to establish a globally inclusive identity and financial network potentially leading to an AI-funded universal basic income, responded to the AEPD's actions. According to Worldcoin's Data Protection Officer, Jannick Preiwisch, World ID, their product, prioritizes access, privacy, and protection online, making it stand out as a privacy-preserving solution for verifying humanness in the AI era.

Worldcoin has stated its ongoing engagement with the Bavarian data protection authority (BayLDA), the lead supervisory authority under GDPR for Worldcoin Foundation and Tools for Humanity. They argue that the AEPD's actions not only circumvent EU law by being limited to Spain but also spread misleading information about their technology.

Worldcoin's attempts to engage with the AEPD and clarify their position and technology have apparently also been ignored. The company is, however, very open about its willingness to work with regulators and provide necessary clarifications.

This incident in Spain comes after a similar controversy in Hong Kong, where the Office of the Privacy Commissioner for Personal Data (PCPD) conducted an investigation into Worldcoin, even executing search warrants on their offices over data privacy concerns.

At the core of the Worldcoin controversy is its use of biometric scanning devices, known as "orbs," which use iris scans to verify users' identities. This biometric method, considered more accurate than fingerprints and other identification techniques, allows Worldcoin to tie user identities to unique biometric data. Users who sign up and activate their accounts through the WorldApp are rewarded with Worldcoin's WLD token, integrating them into its envisioned financial network.

ShapeShift Settles with SEC

In other settlement news, crypto exchange ShapeShift has agreed to a settlement with the U.S. Securities and Exchange Commission (SEC), after the agency's cease and desist order related to its operations before becoming a decentralized autonomous organization (DAO) in 2021. The SEC accused ShapeShift of operating a crypto "vending machine" from 2014 to January of 2021, acting as a market maker for trades and generating revenue from price spreads. Despite being incorporated in Switzerland and based in Colorado, ShapeShift offered at least 79 assets, some of which were labeled as securities by the SEC, resulting in a $275,000 penalty.

ShapeShift stopped its questioned operations in 2021, transitioning into a DAO, making its operations open-source and decentralized. The company, which introduced the FOX token in 2019 for fee-free trading and later as a governance token, admitted that regulatory pressures led to this shift. Despite the transformation, ShapeShift's DAO continues to function under the same web address, with the FOX token trading at way lower prices than its peak from March 2021.

SEC commissioners Hester Peirce and Mark Uyeda criticized the ambiguity of the SEC's regulatory approach in a joint statement, and also pointed out the lack of harm caused to ShapeShift's customers and the challenging regulatory environment for crypto businesses.