Ripple general counsel Stuart Alderoty described BlockFi’s bankruptcy as another success for the U.S. SEC and its regulation-by-enforcement approach.

Another SEC “regulation by enforcement” success story.

Months after $100M BlockFi/SEC deal BlockFi in b/cy. $275M loan outstanding to FTX from BlockFi. Unknown amounts owed to BlockFi from FTX. Nothing ever registered. Fines paid? With whose money? Consumers decimated. https://t.co/XWflfRDIMk

— Stuart Alderoty (@s_alderoty) November 28, 2022

Alderoty referenced the SEC’s $100 million settlement with BlockFi, asking whose money was used to pay the settlement. The Ripple lawyer noted that nothing was ever “registered” in the deal, wondering if  BlockFi made the first two payments to the regulator.

Nothing was ever “registered” per the BlockFi/SEC deal. What about the first two payments on the $100M fine? If they were made, did the SEC confirm BlockFi’s ability to pay and/or the source of funds? FTX b/cy shows a $250M loan to BlockFi and now customer funds are blocked.

— Stuart Alderoty (@s_alderoty) November 27, 2022

Alderoty also questioned whether the SEC confirmed the crypto lender’s “ability to pay and/or the source of funds” if BlockFi made the payments.

In February, BlockFI agreed to pay the US SEC a $100 million fine for its failure to register its lending product with the regulator. The SEC’s top officials repeatedly highlighted how this enforcement action was a major win for the commission.

In July, BlockFi received a $400 million line of credit from FTX. The Sam Bankman-Fried-led exchange would later file for bankruptcy, forcing the crypto lender to halt withdrawals for its customers.

Ripple CTO David Schwartz said BlockFi might have gotten a loan from FTX to pay off the SEC’s settlement. He added that this might have forced the lender to store its assets on FTX in order to continue operating.

“In other words, the SEC may have made BlockFi so weak financially that it had no choice but to store crypto at FTX to continue operating, possibly the cause of their collapse.”

Meanwhile, Nov. 28 court filings have shown the SEC listed among BlockFi’s creditors. According to the court document, the firm owes the financial regulator $30 million.

The bankruptcy filing showed that the lender has over 100,000 creditors, owing over $1 billion to its top 3 creditors.

Its largest creditor is Ankura Trust Company, which is owed more than $729 million. Its second-largest creditor is FTX-related West Realm Shires Inc. which is owed $275 million. An unnamed customer is owed $48 million.

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