The bankruptcy administrator for crypto lender BlockFi and the U.S. Department of Justice (DOJ) have reached a settlement in a legal battle involving $35 million in crypto assets. The lawsuit, originally filed in May 2023, centered around assets held in BlockFi accounts belonging to two Estonian nationals, who were involved in a criminal fraud case unrelated to the company’s bankruptcy.
The DOJ claimed that it had valid warrants to seize the funds as part of its investigation. However, the BlockFi estate pushed back, arguing that the bankruptcy court had jurisdiction over the assets during its Chapter 11 proceedings. This dispute led to a legal standoff, which has now been resolved with both parties agreeing to dismiss the case.
Case Dismissed with Prejudice
On Friday, Judge Michael B. Kaplan of the U.S. Bankruptcy Court for the District of New Jersey approved the settlement. The case was dismissed with prejudice, meaning it cannot be refiled in the future. As part of the agreement, each party will cover its own legal costs and fees.
The case was handled on BlockFi’s side by Mohsin Meghji, the plan administrator overseeing the firm’s wind-down operations. The DOJ was represented by Seth B. Shapiro, a senior trial attorney with the Commercial Litigation Branch of the Civil Division.
FTX Collapse Triggered BlockFi Bankruptcy
BlockFi filed for bankruptcy in November 2022 following the dramatic collapse of FTX, once one of the largest cryptocurrency exchanges in the world. The fallout from FTX created a ripple effect across the crypto market, affecting many lending platforms and investors.
In March 2023, BlockFi reached a significant $875 million settlement with the FTX and Alameda Research estates. That settlement resolved nearly $1 billion in claims. BlockFi’s CEO Zac Prince testified that the actions of FTX founder Sam Bankman-Fried played a direct role in triggering BlockFi’s financial downfall.
In September 2023, the bankruptcy court approved BlockFi’s Chapter 11 restructuring plan, which aims to repay over 10,000 creditors. The total debt stands at around $10 billion, with major claims from BlockFi’s top creditors, including the now-defunct hedge fund Three Arrows Capital.
Customers Can Still Withdraw Funds via Coinbase
As part of its wind-down process, BlockFi has been working to return funds to eligible customers. In May 2024, the firm shut down its own web platform and partnered with Coinbase to facilitate withdrawals.
Clients with BlockFi Interest Accounts, retail loans, and private client accounts were given until April 28, 2024, to withdraw their crypto assets using Coinbase. Those who missed the deadline may still have limited options depending on future bankruptcy court rulings or unclaimed funds processes.
The dismissal of the DOJ lawsuit is a small but important step in closing the chapter on BlockFi’s troubled financial journey. By resolving the $35 million legal dispute, BlockFi can better focus on distributing remaining funds to its many creditors.
Though the crypto lender is no longer operational, the ongoing recovery process and settlements including the major one with FTX, continue to unfold as the industry watches for signs of broader regulatory clarity and lessons learned from one of crypto’s most chaotic collapses.
