BlockFi Gets Court’s Approval to Return $297 Million to Customers

BlockFi was one of several crypto lenders to go bankrupt in 2022.

By Reuters | Updated: 12 May 2023 16:43 IST

BlockFi Gets Court’s Approval to Return $297 Million to Customers

Photo Credit: Facebook/BlockFi

BlockFi was one of several crypto lenders to go bankrupt in 2022

Highlights

BlockFi filed for Chapter 11 protection in November
It cited volatility in crypto markets and its exposure to crypto exchange
BlockFi froze accounts on Nov. 10 shortly before filing for bankruptcy

Bankrupt crypto lender BlockFi received court permission on Thursday to return $297 million (roughly Rs. 2,439 crore) to customers with non-interest-bearing accounts, without repaying customers who had tried to move funds into those accounts at the last minute.

US Bankruptcy Judge Michael Kaplan in Trenton, New Jersey ruled that customers owned their deposits in BlockFi's Wallet program, which did not pay interest and kept customer deposits separate from BlockFi's other funds. Customers who had interest-bearing accounts did not own their deposits, which were turned over to BlockFi for use in its broader lending business, Kaplan ruled.

BlockFi was one of several crypto lenders to go bankrupt in 2022, and questions about the ownership of customer funds have also been raised in the bankruptcies of Celsius Network and Voyager Digital. Judges have ruled in those cases that funds in interest-bearing accounts are the property of a bankrupt company, to be pooled with other assets and used to repay all creditors at a later date.

[Sponsored] Samsung Galaxy S24: The Ultimate Camera Phone With Smarter On-Device AI

The division at BlockFi between the two account types became muddied when BlockFi froze accounts on Nov. 10 shortly before filing for bankruptcy without fully disabling customer-facing functions on its app, creating a situation that Kaplan called "confusing, misleading, and frustrating."

About 48,000 BlockFi customers tried to transfer $375 million (roughly Rs. 3,080 crore) from interest-bearing accounts into Wallet accounts during BlockFi's shutdown on Nov. 10, and they received in-app and email confirmation that the transfers were complete. Lawyers for those customers argued that BlockFi should honor the transfers and return funds to those customers as well.

But BlockFi never performed the back-end work that was required to complete transfers between the two account types, and its terms of service allowed it to block transfer requests as part of its broader shutdown, Kaplan ruled.

Estonia Revokes Operational Permits of Nearly 400 Crypto Firms: Here’s Why

"Quite simply, a customer's withdrawal or transfer request on the user interface did not and does not automatically transfer digital assets," Kaplan said.

BlockFi attorney Michael Slade had argued in an earlier court hearing that allowing the $375 million (roughly Rs. 3,080 crore) in transfers would severely dilute the recovery for Wallet customers and potentially prevent BlockFi from returning any customer funds, due to the practical difficulty of sorting out how to pay the additional Wallet claims from a fixed pool of assets.

BlockFi filed for Chapter 11 protection in November, citing volatility in crypto markets and its exposure to crypto exchange FTX, which imploded amid revelations that customer funds were missing from the exchange.

IMF Warns Zimbabwe Against Launching Gold-Backed Digital Asset

OnePlus recently launched its first tablet in India, the OnePlus Pad, which is only sold in a Halo Green colour option. With this tablet, OnePlus has stepped into a new territory that's dominated by Apple's iPad. We discuss this and more on Orbital, the Gadgets 360 podcast. Orbital is available on Spotify, Gaana, JioSaavn, Google Podcasts, Apple Podcasts, Amazon Music and wherever you get your podcasts.

Affiliate links may be automatically generated - see our ethics statement for details.

Comments

For the latest tech news and reviews, follow Gadgets 360 on X, Facebook, WhatsApp, Threads and Google News. For the latest videos on gadgets and tech, subscribe to our YouTube channel. If you want to know everything about top influencers, follow our in-house Who'sThat360 on Instagram and YouTube.