BlockFi Plans To Liquidate As Customers Lose $300 Million On Judge Ruling

BlockFi, the bankrupt cryptocurrency lender, intends to liquidate its cryptocurrency lending platform after determining that transferring the company to a new owner would not create enough value for its creditors.

In a statement filed Friday with the U.S. Bankruptcy Court for the District of New Jersey, BlockFi revealed its chapter 11 plan of reorganization, which would be sent to creditors—including more than 100,000 retail customers—for a vote.

After engaging with possible bidders to encourage a sale of its digital-assets platform and approximately 660,000 client accounts since January, the company assessed that a sale might not yield meaningful value for creditors. One factor for the lack of value-maximizing offers from prospective buyers, according to the company, was recent regulatory developments.

BlockFi stated that the amount of money clients will be able to recover is largely dependent on the outcome of pending litigation against its commercial counterparties, which include cryptocurrency exchange FTX and trading firm Alameda Research, both founded by Sam Bankman-Fried, as well as cryptocurrency hedge fund Three Arrows Capital and crypto miner Core Scientific.

The outcome of these actions “will make a difference in excess of $1 billion to clients,” according to BlockFi’s filing.

According to its court documents, BlockFi owes over $1.3 billion to its top 50 creditors.

The development comes on the heels of a court ruling that the customers who attempted to regain roughly $300 million in crypto after the business froze payments last year do not have a legal claim to the digital assets.

US Bankruptcy Judge Michael Kaplan sided with the firm and rejected the complaints of a group of users who claimed they had rights to the coins even before they were transferred to a safe digital wallet.

As ruled by the court, those who maintained their assets in interest-bearing accounts forfeited certain ownership rights, whereas those who kept their assets in custodial accounts did not. Users scrambled to move funds into safer digital wallets to safeguard themselves during the freeze.

The decision is comparable to those made in other crypto-company bankruptcy proceedings. Celsius Network now controls the coins that users deposited in interest-bearing accounts, according to a federal judge in New York.

Kaplan discovered that BlockFi halted all transfers on November 10 at 8:15 p.m. After that, some consumers attempted to move their assets to safer, custodial wallets and received alerts on the company’s app indicating that the transfer was successful — but such notices were incorrect, according to Kaplan.

“The user interface did not accurately reflect the transactions,” Kaplan said.

According to court documents, around $292 million in assets were stranded on the platform after users attempted to relocate them following the November 10 suspension. Kaplan determined that the business can now terminate such transactions.

The issue centered on a basic point in the largest crypto firm bankruptcies: Who owns the digital currencies and other assets that clients deposit on unregulated platforms?

Information for this briefing was found via Bloomberg, The Wall Street Journal, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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