The bankrupt crypto lender, BlockFi, has received orders from the court regarding the return of almost $297 million to customers with deposits in the firm’s Wallet program. However, it must be kept in mind that the return of these funds does not apply to the users of the BlockFi Interest Accounts. According to the judge, Michael Kaplan, all of the funds in these accounts were used by BlockFi for lending purposes. Such purposes deem these funds to be the property of different bankruptcy estates.
Furthermore, this suggests that the funds would be utilized to repay the creditors of the firm. The judge also highlighted how the Wallet program did not pay interest on customer deposits, and how it was kept separate from other different funds.
The users of the BlockFi Interest Accounts who tried to transfer the funds to wallets would not be getting a refund at this time. Approximately 48,000 users tried to move a sum of more than $375 million to their wallets after the firm halted its services following the collapse of FTX.
BlockFi did not disable the transactions from the front end, which allowed users to complete a series of transactions and receive confirmation emails. However, all of these transactions were disabled from the back-end which suggests that these transfers remained incomplete. At present, the lawyers of those customers argue that these funds should be returned on an immediate basis. In response to this, Judge Kaplan highlighted how BlockFi was entitled to transaction shutdown based on its terms of service.
“Quite simply, a customer’s withdrawal or transfer request on the user interface did not and does not automatically transfer digital assets.”
The BlockFi Fiasco Rages On
Soon after the collapse of the FTX exchange, the financial health of BlockFi became a matter of conjecture as the firm filed for Chapter 11 bankruptcy protection. During that time, it was reported that the firm had liquidity accounting for almost $256.9 million. According to a series of court documents, it became evident that West Realm Shires Services was at the top of the list of creditors, coupled with a debt of $30 million with the SEC.
BlockFi is considering selling its crypto mining equipment, along with paying a sum of $160 million in Bitcoin-backed loans in hopes of repaying creditors. Currently, the firm owes more than $10 billion to 100,000 creditors. Additionally, BlockFi has been actively exploring opportunities of selling its assets or find an external backer to strike a restructuring deal. However, the firm is required to come up with a bankruptcy exit plan by May 15.