The collapse of Bahamas-based crypto trading platform FTX Trading Ltd has begun to have a direct impact on the fintech sector in Bermuda.

BlockFi International Ltd, the Bermudian incorporated company licensed to conduct digital asset business by the Bermuda Monetary Authority, has filed a petition with the Supreme Court of Bermuda for the appointment of joint provisional liquidators pursuant to section 161(e) of Bermuda’s Companies Act, 1981 in the near term.

In August, the company advertised on LinkedIn, the business and employment-oriented service, for a head of Bermuda AML and head of risk, to take up posts on the island.

Former banker Tasha Jones indicates on her LinkedIn page that she joined BlockFi last month as head of Bermuda AML.

Ms Jones previously worked in the Bermudian fintech sector for Stablehouse, the digital assets investment platform, before leaving in July.

BlockFi is a founding member of Next, the autonomous industry advocacy group for Bermudian-based digital asset companies licensed by the BMA.

The announcement by its parent company, digital asset lender BlockFi Inc, comes as it, and eight of its affiliates, today commenced voluntary cases under Chapter 11 of the US Bankruptcy Code in the United States Bankruptcy Court for the District of New Jersey.

The company said the move has been made to stabilise its business and provide the company with the opportunity to consummate a comprehensive restructuring transaction that maximises value for all clients and other stakeholders.

As part of its restructuring efforts, the company said it would focus on recovering all obligations owed to BlockFi by its counterparties, including FTX and associated corporate entities.

Due to the recent collapse of FTX and its ensuing bankruptcy process, which remains ongoing, the company said it expected that recoveries from FTX would be delayed.

“With the collapse of FTX, the BlockFi management team and board of directors immediately took action to protect clients and the company,” said Mark Renzi of Berkeley Research Group, the company’s financial adviser.

“From inception, BlockFi has worked to positively shape the crypto currency industry and advance the sector. BlockFi looks forward to a transparent process that achieves the best outcome for all clients and other stakeholders.”

To ensure a smooth transition into Chapter 11, BlockFi said, it was filing with the court a series of customary motions to allow the company to continue to operate its business.

These “first day” motions include requests to pay employee wages and continue employee benefits without disruption, for which the company expects to receive court approval, as well as to establish a key employee retention plan to ensure the company retains trained internal resources for business-critical functions during the Chapter 11 process.

The company said it had initiated an internal plan to considerably reduce expenses, including labour costs.

Platform activity continued to be paused at this time, it added.

BlockFi said it had $256.9 million in cash on hand, which was expected to provide sufficient liquidity to support certain operations during the restructuring process.

In relation to the petition to the court in Bermuda, BlockFi said it anticipated that client claims would be addressed through the Chapter 11 process.

When FTX, the company led by Sam Bankman-Fried, collapsed earlier this month, New Jersey-headquartered BlockFi stopped permitting customer withdrawals and had its California lending licence suspended.

BlockFi was substantially impaired by this year’s crypto crash and was bailed out by FTX before the latter also became financially troubled.

Bloomberg reported that the FTX US earlier in the year offered BlockFi a major lifeline by providing a $400 million revolving credit facility in an agreement that came with the option to purchase the company.

BlockFi was originally valued at $3 billion in March 2021 and sought to raise money at a reduced valuation of about $1 billion in June. The firm also faced scrutiny from financial regulators over its interest account and paid $100 million in penalties to the US Securities and Exchange Commission.

BlockFi took an $80 million hit from the bad debt of crypto hedge fund Three Arrows Capital, which imploded after the TerraUSD stablecoin wipeout in May.

Five days ago, in response to what it said were frequently asked questions, BlockFi addressed whether it held 100 per cent of client deposits on FTX.

On Twitter, it wrote: “The rumours that a majority of BlockFi assets are custodied at FTX are false. However, as shared, we do have significant exposure to FTX and associated corporate entities that encompasses obligations owed to us by Alameda, assets held at FTX.com, and undrawn amounts from our credit line with FTX.US.”