TLDR
U.S. court dismisses DOJ’s $35M BlockFi crypto asset case with prejudice.
DOJ tried seizing crypto tied to Estonian suspects in BlockFi accounts.
BlockFi’s Coinbase partnership allowed withdrawals until April 28, 2024.
BlockFi still owes $10B to over 100,000 creditors, including 3AC.
The U.S. Bankruptcy Court for the District of New Jersey has approved a settlement between BlockFi’s bankruptcy administrator and the U.S. Department of Justice (DOJ), officially ending a $35 million crypto asset lawsuit. Judge Michael B. Kaplan signed off on the agreement, which dismisses the case with prejudice.
The lawsuit, filed in May 2023, focused on a dispute over cryptocurrency held in BlockFi accounts. The DOJ had sought to seize more than $35 million worth of assets linked to two Estonian nationals who were facing criminal fraud charges. These charges were unrelated to BlockFi’s bankruptcy case.
Background of the Dispute
The DOJ had claimed legal authority to confiscate the crypto assets based on warrants tied to its fraud case. According to the DOJ, the assets were held in BlockFi accounts controlled by the Estonian suspects.
The department believed it had the right to seize the funds even though BlockFi was undergoing bankruptcy proceedings.
BlockFi’s bankruptcy team disagreed, asserting that the assets were part of the firm’s estate and fell under the jurisdiction of the bankruptcy court. This led to a legal standoff between the DOJ and BlockFi’s bankruptcy administrator, Mohsin Meghji.
Settlement Terms and Court Approval
Under the court-approved agreement, the case was dismissed with prejudice. This means the matter is closed permanently and cannot be reopened. Each side will cover its own legal fees and related costs.
DOJ attorneys, led by senior trial counsel Seth B. Shapiro from the Civil Division’s Commercial Litigation Branch, represented the government in the case.
BlockFi’s interests were represented by its court-appointed plan administrator. The resolution brings an end to one of the legal disputes tied to BlockFi’s Chapter 11 case.
BlockFi’s Wind-Down and Customer Withdrawals
BlockFi filed for bankruptcy in November 2022, following the failure of crypto exchange FTX. After filing for Chapter 11, the firm began a wind-down process, including the closure of its web platform.
In 2023, BlockFi partnered with Coinbase to allow customers to withdraw their funds.
Customers who held BlockFi Interest Accounts, private client accounts, or retail loans were allowed to use Coinbase to access their remaining crypto. The deadline for eligible users to complete withdrawals was April 28, 2024.
BlockFi’s Other Settlements and Claims
The $35 million lawsuit settlement with the DOJ is one of several legal resolutions involving BlockFi. In March 2023, BlockFi also reached an $875 million settlement with the bankruptcy estates of FTX and Alameda Research. This settlement resolved roughly $1 billion in competing claims between the companies.
During earlier court proceedings, BlockFi CEO Zac Prince testified that actions by FTX founder Sam Bankman-Fried played a direct role in BlockFi’s collapse. Following this, the court approved BlockFi’s Chapter 11 reorganization plan in September 2023. The plan is aimed at repaying more than 10,000 creditors.
As of the latest filings, BlockFi still owes approximately $10 billion to over 100,000 creditors. This includes debts to institutional creditors and to bankrupt hedge fund Three Arrows Capital.
Regulatory Actions and Licensing
Separate from the DOJ case, BlockFi has also faced regulatory actions. The state of California officially revoked BlockFi’s lending license in 2024, nearly two years after its bankruptcy filing. This move further limited the company’s ability to operate financial services.
The combined legal and regulatory developments continue to shape the final stages of BlockFi’s wind-down. The recent court-approved settlement with the DOJ closes one chapter in the bankruptcy process while the company continues efforts to resolve outstanding claims.
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