BlockFi gets court permission to return $297 million to Wallet customers
Reuters
Published May 11, 2023 02:14PM ET
Updated May 11, 2023 02:49PM ET
By Dietrich Knauth
NEW YORK (Reuters) - Bankrupt crypto lender BlockFi received court permission on Thursday to return $297 million to customers with non-interest-bearing accounts, without repaying customers who had tried to move funds into those accounts at the last minute.
U.S. 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.
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 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.
"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 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.
Get The News You Want
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.
Written By: Reuters
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.