BlockFi, a failed cryptocurrency lender, has finally reached an agreement with the Department of Justice (DOJ) over a $35 million asset dispute. The agreement resolves a lawsuit over crypto holdings that the DOJ asked to confiscate from BlockFi accounts associated with a fraud probe in Estonia. The two Estonian nationals are under federal investigation in a separate case not related to BlockFi’s bankruptcy.
In May 2023, the DOJ filed a lawsuit in a bid to seize more than $35 million held by BlockFi and transfer the funds to the U.S. government. It had been alleged that it had legal warrants to seize and that the U.S. Bankruptcy Court of the District of New Jersey could not prevent its transfer.
Nevertheless, after negotiations, both parties agreed to drop the case with prejudice, which means it cannot be filed again in court. Both parties shall bear the costs of their law firm and general expenses. Judge Michael B. Kaplan of the U.S. Bankruptcy Court approved the deal.
Bankruptcy Processes Underway
In November 2022, the fall of FTX plunged BlockFi in Chapter 11 bankruptcy. The digital lending organization recorded unpaid accounts to its more than 100,000 creditors of approximately 10 billion dollars. In September 2023, BlockFi was restructured, and its bankruptcy court allowed the company to move on with its restructuring plan; with court oversight, BlockFi will be able to repay select individuals.
The final customers’ withdrawal deadline was April 28, 2024. BlockFi halted the platform and collaborated with Coinbase to enable eligible customers, such as those with interest accounts, loans, and private client accounts, to withdraw their remaining funds.
Other Claims and Other Legal Developments
In March 2023, BlockFi also agreed to a separate settlement of $875 million with the bankruptcy estates of FTX and Alameda Research to resolve about $1 billion in claims. Zac Prince, CEO of BlockFi, testified earlier that FTX and its founder, Sam Bankman-Fried, engaged in misconduct that contributed heavily to BlockFi’s collapse.The settlement between BlockFi and DOJ is a milestone toward the liquidation of the bankruptcy case.
