A US judge has approved bankrupt cryptocurrency lender BlockFi to return $297 million to customers who held deposits in its wallet program, Reuters reported on May 11.
Fund rebates are not available to users of BlockFi Interest Accounts (BIA). According to bankruptcy judge Michael Kaplan, BlockFi used the funds in the BIA account for its lending business and therefore belonged to the bankruptcy estate. This means the funds will later be used to repay all creditors.
By contrast, e-wallet programs pay no interest on customer deposits and keep them separate from other funds. The judge also ruled that BIA users attempting to transfer funds to wallets at this time will not receive refunds. Nearly 48,000 BlockFi customers attem pted to transfer $375 million from their BIA accounts to Wallet accounts on Nov. 11 after the company froze service after the FTX crash. However, BlockFi did not disable the transfer option from its front-end application, allowing users to trade between accounts and even receive email confirmations. However, these transactions are disabled on BlockFi's backend, which means they cannot be completed.
Lawyers for these clients argued that BlockFi should also refund their transfers. Judge Kaplan said that under BlockFi's terms of service, lenders have the right to block trade requests during the shutdown.
BlockFi filed for Chapter 11 bankruptcy protection in late November following days of speculation about its finances following the FTX debacle. At the time, the cryptocurrency lender had $256.9 million in liquidity. Court documents show that West Realm Shires Services Inc., which does business as FTX US, is at the top of the list of creditors, along with an additional $30 million owed to the SEC. The company seeks to sell its crypto mining equipment and $160 million in bitcoin backing repay the loans of its creditors. BlockFi owes approximately $10 billion to more than 100,000 creditors.
BlockFi has until May 15 to file its bankruptcy exit plan. According to its lawyer Joshua Sussberg, BlockFi is exploring the possibility of selling its assets or finding outside backers to support a restructuring deal.
