Crypto lender BlockFi, currently undergoing bankruptcy proceedings, is pushing back against attempts by FTX and Three Arrows Capital (3AC) to claim billions of dollars in funds exchanged prior to their respective collapses last year.

In a court filing, BlockFi challenged the validity of the $5 billion being sought by FTX and 3AC, accusing the two entities of victimizing BlockFi.

The filing from BlockFi contends that the concept of “unclean hands” should be invoked to prevent future injustices to the creditors associated with BlockFi’s assets.

This ongoing dispute has the potential to significantly impact the amount that each creditor will receive in the individual bankruptcy cases of BlockFi, FTX, and Three Arrows Capital.

BlockFi, already navigating the process of liquidation, expressed concerns that its legal battles with FTX, 3AC, and other cryptocurrency companies could negatively impact its clients’ repayment by as much as $1 billion.

FTX, in its defense, emphasizes its primary aim of recovering loan repayments and collateral extended to BlockFi prior to the latter’s bankruptcy filing in November 2022.

Among its claims, FTX seeks to retrieve the $90 million withdrawn by BlockFi from and the $400 million that BlockFi’s trading company, Alameda Research, repaid in loan interest.

However, BlockFi contests the nature of the $400 million transaction, asserting that it deviated from a conventional loan arrangement.

BlockFi argues that this sum was tied to an unsecured, 5-year term featuring interest rates significantly below market averages, with repayment not mandated until the company matured.

BlockFi characterizes FTX’s investment as a “gamble,” asserting that BlockFi’s creditors should not bear responsibility for its outcome.

As a key creditor, Three Arrows Capital also contends that BlockFi owes them more than $220 million, a claim being pursued through liquidators acting on their behalf.

Bankruptcy laws grant businesses the authority to reverse transactions that favored certain creditors in the months leading up to filing for Chapter 11. This legal mechanism lies at the heart of the ongoing disagreement between BlockFi and its creditors.