BlockFi, a cryptocurrency lending platform, has been warned by the bankruptcy trustee that the $227 million the company holds in Silicon Valley Bank (SVB) may go against bankruptcy laws.
This is because these funds are supposedly not protected by Federal Deposit Insurance Corporation (FDIC) deposit insurance. It’s because this amount is invested in a money market mutual fund, which may be illegal under bankruptcy laws.
BlockFi faces scrutiny for lack of FDIC insurance
BlockFi had previously filed for bankruptcy in November last year following the collapse of FTX.
According to documents released Friday regarding BlockFi’s bankruptcy proceedings, the failed cryptocurrency lender has $227 million in funds stored at Silicon Valley Bank (SVB).
The documents include a summary statement of the SVB balance. It indicates that BlockFi’s investment is “not guaranteed by the bank,” is not FDIC insured, and is not covered by any other federal government agency.
The FDIC provides coverage for deposits of up to $250,000 per depositor, but not for the full range of money market funds.
The US Securities and Exchange Commission regulates money market mutual funds, which invest in highly liquid short-term securities, such as cash equivalents, cash, and short-term debt instruments.
This comes after the California Department of Financial Protection and Innovation announced early Friday that Silicon Valley Bank would be closing.
As the fallout from the shocking collapse of Silicon Valley Bank continues, several cryptocurrency firms have already disclosed their exposure to the bank, with BlockFi among those affected.
Silicon Valley Bank transfers your deposits
Since then, Silicon Valley Bank has moved all deposits covered by the FDIC to the National Deposit Insurance Bank of Santa Clara. The FDIC announced that by March 13, all insured depositors would have full access to their insured accounts and that uninsured depositors would receive certificates for the amounts of their uninsured money.
BlockFi is one of many companies scrutinized for its lack of FDIC insurance. This highlights the need for increased regulatory oversight in the industry to protect investors.
As the cryptocurrency industry grows, companies must be transparent about their practices and comply with all laws and regulations. The warning issued to BlockFi serves as a reminder to all other cryptocurrency lending platforms.
