Lawyers acting for BlockFi, which filed for bankruptcy earlier this week, claim Mr Bankman-Fried pledged shares in Robinhood as collateral for a loan that he subsequently failed to pay, which contributed to BlockFi's collapse.
The two sides are battling over control of the shares as the escalating fallout from FTX’s collapse triggers a wave of litigation.
Legal proceedings, revealed in a Delaware bankruptcy court this week, shed light on how interconnected many leading cryptocurrency companies are behind the scenes, with a complex web of loans and collateral.
At the heart of BlockFi’s case against Mr Bankman-Fried are shares he held in Robinhood, a Nasdaq-listed share trading app valued at $8bn.
Mr Bankman-Fried acquired a 7.6pc stake in Robinhood in May at a time when the stock was trading at an all-time low. The company’s share price soared 25pc when Mr Bankman-Fried’s investment became public knowledge.
The 30-year-old allegedly then pledged his Robinhood shares as collateral to secure a loan from BlockFi, which was once valued at $3bn.
Mr Bankman-Fried allegedly planned to use the loan to prop up FTX.
However, FTX crashed into bankruptcy on Nov 11 with an $8bn hole in its balance sheet after public concerns were raised about its financial health.
BlockFi tried to call in its loan the day before FTX filed for bankruptcy, claiming Mr Bankman-Fried had defaulted. It also tried to gain control of the Robinhood shares.
BlockFi itself filed for bankruptcy on Monday, blaming its involvement with Mr Bankman-Fried for its collapse. Alameda Research, a trading business set up by Mr Bankman-Fried, allegedly also defaulted on $680m in loans from BlockFi.
BlockFi has now sued Emergent Fidelity, a Bahamas company Mr Bankman-Fried bought Robinhood shares through, and Man Capital Markets, Emergent’s broker, to force transfer of the Robinhood shares. Administrators are also pursuing Alameda for the $680m loan, part of efforts to repay an estimated $1bn BlockFi owes its creditors.
BlockFi did not respond to a request for comment. Robinhood declined to comment. Mr Bankman-Fried could not be reached for comment.
Mr Bankman-Fried left FTX after it filed for bankruptcy and he was replaced by John Ray, the administrator who oversaw the collapse of Enron. Mr Ray has suggested FTX’s poor record keeping makes it a tougher job than cleaning up the infamous US energy company, which failed in 2001.
BlockFi attorney Joshua Sussberg told a court in Trenton, New Jersey, on Tuesday that unlike FTX BlockFi had mature and consistent leadership, worked with experts, and had appropriate procedures and protocols.
"This is completely, 180 degrees, a different story," Mr Sussberg said, saying US cryptocurrency lender BlockFi was "the antithesis of FTX."
Prior to FTX’s collapse, Mr Bankman-Fried positioned himself as the saviour of global cryptocurrency markets, bailing out struggling businesses roiled by instability.
Mr Bankman-Fried in fact provided a lifeline to BlockFi over summer, loaning it $400m. The company listed FTX as its second largest creditor at the time of bankruptcy.
Two of BlockFi's largest competitors, Celsius Network and Voyager Digital, filed for bankruptcy in July, citing extreme market conditions.
Several other platforms have suspended withdrawals as the collapse of FTX sends shockwaves through the industry.