Alderoty believes that the SEC settlement deal with BlockFi backed the crypto lender into a corner, putting customers at risk.

Ripple General Counsel Stuart Alderoty laid the potential collapse of BlockFi at the feet of the US Securities and Exchange Commission in a couple of tweets on Sunday to establish a trend of the regulator hurting consumers.

Nothing was ever “registered” per the BlockFi/SEC deal. What about the first two payments on the $100M fine? If they were made, did the SEC confirm BlockFi’s ability to pay and/or the source of funds? FTX b/cy shows a $250M loan to BlockFi and now customer funds are blocked.

— Stuart Alderoty (@s_alderoty) November 27, 2022

According to Alderoty, it is not clear that the SEC carried out its due diligence to ensure that the crypto lender could pay the $100 million fine it was slapped with as part of a settlement deal in February, nor did it confirm the source of this funding. The Ripple GC speculates that BlockFi’s settlement with the SEC forced it to get in bed with FTX, citing the $250 million loan BlockFi received from FTX in June, as seen in FTX’s bankruptcy filings.

With FTX in bankruptcy proceedings, BlockFi customers risk losing their funds as the lender has paused operations. Notably, Ripple CTO David Schwartz surmising Alderoty’s thoughts, also stoked the flames of rumors that in exchange for the line of credit, BlockFi kept customer funds on FTX.

“… BlockF [BlockFi] borrowing funds from FTX for fines may be connected to BlockFi assets being stored at FTX,” Schwartz tweeted. “In other words, the SEC may have made BlockFi so weak financially that it had no choice but to store crypto at FTX to continue operating, possibly the cause of their collapse.”