Bankrupt crypto lender BlockFi had left $227 million at Silicon Valley Bank, which was shut down on March 10 by a federal regulator.
Accessing the unprotected funds BlockFi left at the failed bank could be challenging until a buyer acquires it.
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The FDIC closed SVB on March 10 and started a new bank called the Deposit Insurance National Bank of Santa Clara.
SVB failed after numerous companies transferred their cash out of the bank when it failed to raise more capital after a $1.8 billion loss stemming from a bond investment that was sold since depositors wanted to recoup their cash deposits.
After filing for bankruptcy in November, BlockFi kept $227 million in unprotected funds via a money market mutual fund, the U.S. Trustee wrote in a court filing on March 10.
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Money Market Mutual Fund Not Insured By FDIC
Funds in a money market mutual fund are not covered by the FDIC's insurance.
The FDIC covers assets up to $250,000 and any amount over that level is deemed an unsecured deposit.
The agency said on March 10 it would "pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. "As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors."
The U.S. Trustee said earlier in 2023 it had warned the crypto lender it might not be meeting compliance.
BlockFi said it planned to provide evidence that the company was in compliance.
But the U.S. Trustee said BlockFi had not met compliance by March 10 when the FDIC took over SVB.
BlockFi Filed Bankruptcy
BlockFi filed for bankruptcy after the platform decided on November 14 to suspend withdrawals and other operations due to its exposure to FTX, the failed cryptocurrency exchange that also filed for bankruptcy.
BlockFi that had promised to compete with traditional banks was among the victims of the liquidity crisis caused by the collapse of sister tokens Luna and UST, which saw at least $55 billion disappear last May.
FTX and its sister company Alameda Research, the two heads of Sam Bankman-Fried's crypto empire, were centerpieces of the cryptocurrency industry. The two companies had played the saviors of crypto firms and were weakened after the failure of the two tokens.
This disaster triggered a credit crunch that caused crypto lenders Voyager Digital and Celsius Network to file for Chapter 11 bankruptcy. Hedge fund Three Arrows Capital was forced into liquidation.
Many other companies had been bailed out by FTX and Alameda Research. BlockFi signed a bailout deal with FTX US, the U.S. subsidiary of FTX.com last July. The deal included an option given to FTX to acquire BlockFi at a variable price based on performance, but the maximum price was $240 million.
The agreement also included a $400 million credit revolver facility. In the end, the transaction was valued at $680 million.
All these bankruptcies have the same victims: investors who do not know if they will be able to recoup their money. The top 50 creditors of FTX, for example, are owed over $3 billion, according to court documents.
