Robinhood Markets, Inc. revealed that it is planning to buy back its shares owned by Sam Bankman-Fried (SBF) following the FTX Trading Ltd. fallout. The brokerage firm is reportedly in talks with the US Department of Justice over the matter.
The Contested Shares
According to Financial Times News, SBF acquired 55 million shares of Robinhood via his Emergent Fidelity Technologies holding company last year. This translates to 7.6 percent ownership of the brokerage which is now estimated to be valued at around $575 million.
Following the bankruptcy filing of SBF, the said shares are now hotly contested. Among the parties in the dispute are the Department of Justice, BlockFi, and SBF together with FTX creditor Yonathan Ben Shimon.
The Claimants
In January this year, the Department of Justice seized the Robinhood shares of SBF as the nature of their purchase was suspected to be coming from the proceeds of criminal activities. It should be noted that SBF is currently on bail as he faces a barrage of fraud and money laundering lawsuits.
The other claimant is the now-bankrupt BlockFi. The company alleged that SBF pledged the shares in question as collateral following its approval for the funding of a $600 million loan in favor of Alameda Research, another firm associated with FTX.
Unfazed by the circumstances SBF continues to lay claim to the contested Robinhood shares. In his defense, he stated that they should not be covered under the bankruptcy proceedings of FTX. SBF’s legal team further argues that they are essential in keeping his legal fees afloat.
The troubled former chief executive officer of FTX’s legal expenses have not been made public, but Sullivan and Cromwell LLC, the firm’s bankruptcy attorneys, are reportedly under a $12 million retainer. An estimated $3.4 million of the agreed amount has already been paid in August last year even before FTX’s bankruptcy filing in November.
Bankman-Fried is also out on a $250 bail under anonymous guarantors. On the other hand, the direct conspirators of the former billionaire, namely former CEO Caroline Ellison of Alameda Research and FTX co-founder Gary Wang have already pleaded guilty to several fraud charges.
Robinhood’s Goal
Robinhood is in negotiations to repurchase its shares formerly held by SBF at market price from the Department of Justice. This came following its board’s authorization to go on with the move according to the statement of company Chief Financial Officer Jason Warnick. The firm believes that getting back the 7.6 percent slice of SBF would help protect the interest of the company and its investors in the long run.
Presently, there is no timeline for the ongoing negotiations. The Robinhood CFO is also unsure as to whether or not the repurchase will even take place, given all the factors at play.
Final Thoughts
There is limited precedence in the situation that Robinhood is in with regard to its stock repurchase from FTX, which is undergoing bankruptcy proceedings and its execs under fire for various criminal charges. Therefore, it remains to be seen whether or not their move will prosper. Nevertheless, it’s a good move to help preserve its integrity with its investors and clientele going forward.