Bankrupt crypto lender BlockFi has moved to recover several assets in a bid to settle its customers as part of its ongoing bankruptcy proceedings. And the company is standing firm that its customers should take priority over fellow bankrupt company FTX.

In a filing dated August 21, BlockFi objected to FTX’s claims on several grounds, including the fact that it alleges that the latter’s claims are baseless and lack merit. The company further alleges that FTX shouldn’t be allowed to profit from its wrongs and take precedence over its “ultimate victims,” who are BlockFi’s customers and creditors. 

According to the court document, FTX debtor entities had, on March 31, 2023, filed an addendum attached to its proof of claim where it sought to recover over $5 billion from BlockFi as part of its creditors. BlockFi told the court that, if any of FTX’s claims are allowed, such claims should be “equitably subordinated.” 

The doctrine of equitable subordination refers to the bankruptcy court’s power to arrange creditors’ interests in order of priority and place the claims of wrongdoers in an inferior status. As such, BlockFi asks that the court prioritize BlockFi’s clients and other creditors above FTX.

A major highlight of FTX’s claims is the “Option Agreement Claim.” The exchange asserts that BlockFi should be made to pay damages for its alleged misrepresentations and improper disclosures about the Option agreement, which both parties signed. 

Last year, FTX bailed out BlockFi in the wake of Three Arrows Capital’s (3AC) collapse. Part of the agreement was that the exchange could purchase the crypto lender for up to $240 million later. 

However, BlockFi has objected to each of FTX’s claims in its “entirety.” The crypto lender claims that the exchange hasn’t laid sufficient facts to support its claims and has failed to discharge the burden of proof placed on it. 

According to a petition filed by BlockFi, it owes over 100,000 creditors, including Ankura Trust Company and West Realm Shires Inc., owed over $729 million and about $275 million, respectively. 

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The crypto lender also owes the United States Securities and Exchange Commission (SEC) $30 million in unsecured claims. However, the regulator had agreed to waive this fine until BlockFi repays other of its creditors.

Earlier this month, creditors received some much-needed good news when BlockFi announced that it had received conditional approval from the court to move forward with its repayment plan. The first part of its plan is to recover funds from its creditors, including FTX, Emergent, and Alameda.

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