Story Behind SBF's Robinhood Shares
9 min read
Before digging into SBF's filing in the FTX bankruptcy docket, keep in mind that he is no longer CEO of FTX, Alameda or any of its affiliated or related entities. Additionally, John J. Ray III, has gone to lengths to make it expressly clear that the relationship between SBF and FTX is effectively non-existent at this point.
Thus, any filings by Samuel Bankman-Fried in the FTX Bankruptcy docket are in furtherance of his interests as an individual private citizen.
Taking a Peek at Samuel Bankman-Fried's Request to Exempt the Robinhood Shares from Falling Under Injunction
- Full-text here
The filing asks the court to deny FTX's petition to place the assets among those that are subject to the 'Automatic Stay' that's typically triggered at the commencement of bankruptcy proceedings. Specifically the filing states, "Mr. Bankman-Fried respectfully requests that the Stay Motion be denied because the FTX Debtors are effectively advancing an argument for a preliminary injunction but have failed to carry their heavy burden of establishing that such an extraordinary remedy is warranted."
The filing goes on to state, "As the United States Department of Justice obtained a warrant to seize the assets at issue and seized such assets, the Stay Motion is moot. Despite that, the FTX Debtors have not withdrawn the Stay Motion. As a result, Mr. Bankman-Fried is compelled to reply...The FTX Debtors seek to disregard the separate existence of a corporation that is not a party to this action and encumber hundreds of millions of dollars worth of assets to which they have no legal claim. The remedy they seek is extraordinary and inappropriate. Accordingly, the Stay Motion should be treated as a request for a preliminary injunction and subjected to a heightened standard of proof."
In short, the filing notes that FTX in its capacity as an exchange made a filing requesting for these assets (Robinhood shares) to be included among the already existing assets that had been placed under an 'Automatic Stay', as is typical during Chapter 11 bankruptcy proceedings.
Brief Explanation of the 'Automatic Stay' Process in Chapter 11 Bankruptcy Proceedings
The purpose of filing for bankruptcy under 'Chapter 11' is to grant the filing entity a chance to "reorganize" and restructure their business in a manner that will allow them to continue operating insolvency.
As such, these proceedings are almost always accompanied by an 'Automatic Stay' of the filing company's assets. A 'stay' is a general legal term that refers to an "injunction" issued by the courts. In layman's terms, it's an order to cease a pending action(s) and a prohibition against commencing said action(s).
In this case, the automatic stay is a "provision in United States bankruptcy law that temporarily prevents creditors, collection agencies, government entities, and others from pursuing debtors for money that they owe." (source).
U.S. law dictates this goes into effect the second a debtor (company filing for bankruptcy) makes the filing.
Again, per Investopedia, "Automatic-stay provisions protect the debtor against certain actions from their creditors, including starting or continuing court proceedings against the debtor; moving to foreclose on a debtor’s property; creating, perfecting, or enforcing a lien against a debtor’s property; and attempting to repossess the collateral."
The purpose of this provision of Chapter 11 bankruptcy filings is to give the debtor time to get their shit together before creditors and others descend upon them like a bunch of ravenous vultures because they will likely engage the debtor in proceedings that will encumber their ability to restructure their finances properly, which is ultimately counter-intuitive to the interests of all creditors, collectively.
Relevant Information about Emergent Fidelity Technology Ltd.
It's important to remember that FTX is the debtor here - not Samuel Bankman-Fried, even though the latter is the one that's informally considered to be the individual indebted to FTX customers and lenders.
The shares in question that Emergent Fidelity Technology Ltd. acquired from Robinhood were purchased with funds the holding company received from Alameda Research, which is one of the firms involved in the Chapter 11 bankruptcy proceedings. The holding company, 'Emergent Fidelity Technology Ltd.', is 90% owned by Samuel Bankman-Fried with Gary Wang holding the remaining 10%.
Both individuals are the defendants in a pending federal case with charges that include multiple counts of fraud perpetrated against their customers in their respective roles as executives at FTX.
As noted in the New York Times and other publications, Gary Wang, one of the founders of FTX, has already pleaded guilty to four different counts related to the aforementioned pending federal case.
Those counts are reflected in the superseding indictment against Samuel Bankman-Fried, which attaches the former CEO of Alameda Research, Caroline Ellison alongside Gary Wang as co-defendants.
The specific counts to which Gary Wang plead guilty are:
Conspiracy to Commit Wire Fraud on Customers
Wire Fraud on Customers
Conspiracy to Commit Commodities Fraud
Conspiracy to Commit Securities Fraud
The relevant court filing that includes these charges alongside supplementary 'superseding' information can be found here.
Argument Made by SBF's Legal Team for Denying FTX's Motion
In their filing to the bankruptcy docket on January 5th, 2023, Samuel Bankman-Fried's lawyers object to FTX's motion titled, 'Debtors' Motion to Enforce the Automatic Stay or, in the alternative, Extend the Automatic Stay' on several different grounds, which are summarized below:
It is argued that any consideration about whether the shares should be considered as part of the automatic stay is pointless because the Department of Justice's seizure of said shares renders the argument moot since the court is now unable to make any ruling that can impact their status at this point.
It is argued that the debtors' claim to these shares is, in actuality, a request for preliminary injunctive relief. The rationale underlying this argument is a bit more nuanced, but in essence SBF's filing asserts that since the shares were technically never the property of either Alameda or FTX, they cannot qualify for injunctive relief under the 'Automatic Stay' provision of Ch. 11 proceedings. It is then asserted that the debtors still believe they must lay claim to these assets on the basis that their acquisition was only made possible via a loan from Alameda Research and that said the loan was only given under fraudulent pretense or suspicious circumstances. SBF argues that such an assumption is not validated by present facts but rather by allegations. Therefore, imposing an injunctive relief upon such assets would not qualify as applicable under the 'Automatic Stay' but rather as a 'preliminary injunction' (keyword: preliminary).
The filing claims that "Mr. Bankman-Fried and Zixiao Wang borrowed the funds for Emergent to purchase the Robinhood Shares from Alameda and a set of loans were memorialized in four different promissory notes." It is stated that public records of the transaction can be found within this SEC court filing.
OG Motion Filed by FTX Requesting Injunction on Robinhood Shares
This report is not covering the various claims on the shares in chronological order for coherency purposes as it made more sense to examine SBF's objection in specific before visiting the motion filed by Samuel Bankman-Fried
The original motion for which Samuel Bankman-Fried, BlockFi and other competing parties filed responses in objection to was filed by FTX on December 22nd, 2022, and titled, 'Debtors' Motion to Enforce the Automatic Stay or, in the Alternative, Extend the Automatic Stay'.
This filing can be found here
The filing begins by noting, "Approximately 56 million shares of Robinhood Markets, Inc.'s Class A common stock are currently frozen in a brokerage account at ED&F Man Capital Markets Inc. in New York City. Alameda held other assets at EDFM for which there is no dispute as to ownership. However, unlike other Debtor assets at EDFM, the Robinhood Shares were nominally held, on the Petition Date, in street name for an affiliated non-debtor company organized in Antigua and Barbuda named Emergent Fidelity Technologies Ltd. Emergent is a special-purpose holding company that appears to have no other business, and is 90% owned by Samuel Bankman-Fried, former CEO of FTX Trading and former ultimate controlling person of FTX Trading and Alameda."
Their filing goes on to note "three different competing stakeholders of the Debtors" who have submitted filings laying claim to the shares in proceedings involving the Debtor (FTX), which are:
BlockFi Lending LLC and BlockFi International LLC
Yonathan Ben Shimon
Revelations from FTX about BlockFi's Involvement
On page 3 of the FTX filing, it is stated that "BlockFi has been a lender to Alameda for at least three years. With news of FTX's imminent collapse making headlines worldwide, just two days before the Debtors (including FTX Trading and Alameda) filed for bankruptcy, BlockFi scrambled to protect itself from impending losses on antecedent loans by threatening to seek remedies against Alameda if Alameda did not pledge additional collateral for those loans."
"In response to those threats, and despite the perilous financial position of Alameda and the other Debtors, Alameda's then-CEO Caroline Ellison, with knowledge and encouragement from Mr. Bankman-Fried, purportedly agreed to pledge over $1 billion worth of additional Alameda assets to secure Alameda's outstanding loan obligation to BlockFi. The Robinhood Shares were included in these pledged assets by Alameda's then-CEO, despite the fact that the Robinhood Shares were nominally held by Emergent, because Alameda had then, and continues to have, a property interest in the Robinhood Shares."
This information substantially diverges from what was included in the objection to the Stay made by Samuel Bankman-Fried in several important ways.
Out of all the new information provided, the most important tidbit in this portion of the filing is the revelation that Alameda included these funds as part of a $1 billion dollar collateral package to BlockFi in November 2022 (this date derived from the filing stating that this occurred, "just two days before the Debtors filed for bankruptcy" since this is known to have occurred on November 11th, 2022)
Notably, this claim was not rebutted or even acknowledged in Sam Bankman-Fried's filing objecting to this motion by FTX.
Revelations from FTX about Yonatan Ben Shimon
'Yonathan Ben Shimon' (his name is spelled, 'Yonatan' online), is the other creditor that the FTX filing states laid claim to the Robinhood shares owned by Emergent Fidelity Technology Ltd.
In regards to this creditor, the filing states, "Meanwhile, in Antigua, a creditor of FTX Trading, Mr. Ben Shimon, has obtained a freezing injunction from an Antiguan court with respect to the assets of Emergent, including the Robinhood Shares, following the appointment of receivers for Emergent and the Shares. The receivers were appointed after the Antiguant court concluded there was sufficient evidence that the Robinhood Shares were purchased with funds from FTX Trading and, therefore, should be available to pay prepetition claims of creditors of FTX Trading, such as Mr. Ben Shimon. The receivers have purported to replace Mr. Bankman-Fried as sole director of Emergent."
The purpose of this post was just to provide greater information about what's going on behind the scenes as it pertains to Samuel Bankman-Fried and the Robinhood Shares.