BlockFi and DOJ Settle $35M Lawsuit Over Crypto Asset Transfers

In a significant development for the ongoing BlockFi bankruptcy proceedings, the crypto lender's bankruptcy administrator and the U.S. Department of Justice (DOJ) have reached an agreement to dismiss a $35 million lawsuit. The dispute centered on the transfer of crypto assets, with the DOJ seeking to seize funds from BlockFi accounts linked to a criminal fraud case unrelated to BlockFi's bankruptcy.

Legal Showdown Averted: BlockFi and DOJ Settle $35M Asset Dispute

Key Takeaways

• The lawsuit, filed in May 2023, involved the DOJ's attempt to seize over $35 million in crypto assets from BlockFi accounts belonging to two Estonian citizens, citing a criminal fraud case.

• The DOJ had argued that the U.S. Bankruptcy Court for the District of New Jersey lacked jurisdiction to prevent the transfer of these assets.

• The settlement, approved by Judge Michael B. Kaplan, results in the case being dismissed with prejudice, meaning it cannot be refiled.

• Both parties will bear their own legal fees and costs as part of the agreement.

Details of the Dismissal

The agreement to dismiss the lawsuit was approved by Judge Michael B. Kaplan of the U.S. Bankruptcy Court for the District of New Jersey on Friday. This resolution brings an end to a contentious legal battle that began in May 2023. The DOJ had sought to transfer over $35 million in crypto assets from BlockFi, asserting that it held warrants to seize these funds from the accounts of two Estonian citizens involved in a criminal fraud case. Crucially, this criminal case was unrelated to BlockFi's own bankruptcy.

At the heart of the dispute was the question of jurisdiction. The DOJ contended that the bankruptcy court did not have the authority to prevent BlockFi from transferring these specific assets. However, the recent stipulation between the parties has led to the case being dismissed "with prejudice," a legal term indicating that the claim cannot be reasserted in the future. As part of the settlement, each party will be responsible for their own legal expenses.

Mohsin Meghji, the Plan Administrator for BlockFi’s wind-down estates, represented the crypto firm, while senior trial counsel Seth B. Shapiro and his team from the Civil Division’s Commercial Litigation Branch represented the Department of Justice.

BlockFi's Ongoing Bankruptcy Saga

This settlement marks another step in BlockFi's complex bankruptcy proceedings, which began in November 2022 following the collapse of FTX. The company has been actively working to wind down its operations and facilitate the return of funds to its creditors.

Key developments in BlockFi's bankruptcy include:

• Platform Shutdown and Withdrawals: In May of last year, BlockFi announced plans to shut down its web platform and partnered with Coinbase to assist clients in withdrawing their remaining funds. Eligible users, including those with BlockFi Interest Accounts, retail loans, and private client accounts, can utilize Coinbase for withdrawals.

• Withdrawal Deadline: A withdrawal deadline of April 28, 2024, was set for customers to reclaim their crypto holdings.

• FTX Settlement: In March of last year, BlockFi reached an $875 million settlement with the FTX and Alameda Research estates, resolving approximately $1 billion in claims. BlockFi CEO Zac Prince had previously testified that FTX founder Sam Bankman-Fried's actions directly contributed to BlockFi's bankruptcy.

• Chapter 11 Plan Approval: The bankruptcy court approved BlockFi’s Chapter 11 plan in September 2023, aiming to repay over 10,000 creditors. BlockFi reportedly owes around $10 billion to more than 100,000 creditors, including significant debts to its top three creditors and the bankrupt hedge fund Three Arrows Capital.

Sources

• BlockFi bankruptcy administrator and DOJ agree to dismiss $35M lawsuit — TradingView News, TradingView.

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