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BlockFi’s bankruptcy administrator and the U.S. Department of Justice have reached a pivotal settlement to resolve a $35 million crypto asset transfer dispute.
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The agreement, approved by the U.S. Bankruptcy Court, marks a significant step in the ongoing wind-down of BlockFi’s operations and clarifies jurisdictional boundaries in crypto asset seizures.
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According to COINOTAG, the settlement dismisses the lawsuit with prejudice, ensuring no future claims on the disputed assets, and highlights the complexities of crypto asset management amid bankruptcy proceedings.
BlockFi and DOJ settle $35M crypto asset transfer lawsuit, resolving jurisdictional disputes and advancing bankruptcy wind-down efforts in a landmark crypto legal case.
Settlement Ends $35 Million Crypto Asset Transfer Lawsuit Amid BlockFi Bankruptcy
The recent settlement between BlockFi’s bankruptcy administrator and the U.S. Department of Justice (DOJ) effectively concludes a contentious $35 million crypto asset transfer lawsuit. This case, initially filed in May 2023, centered on the DOJ’s attempt to seize crypto assets held in BlockFi accounts linked to two Estonian nationals involved in an unrelated criminal fraud investigation. The DOJ contended that the U.S. Bankruptcy Court for the District of New Jersey lacked jurisdiction to block the transfer of these assets, creating a legal impasse during BlockFi’s bankruptcy proceedings.
Judge Michael B. Kaplan’s approval of the settlement stipulation brings clarity to the jurisdictional challenges that arise when federal criminal investigations intersect with bankruptcy law in the crypto sector. The dismissal with prejudice means the case cannot be reopened, allowing BlockFi’s bankruptcy estate to proceed without further legal encumbrances related to these assets. Both parties have agreed to bear their own legal costs, reflecting a pragmatic resolution to a complex dispute.
Impact on BlockFi’s Bankruptcy Wind-Down and Customer Withdrawals
BlockFi’s bankruptcy, declared in November 2022 following the collapse of FTX, has been marked by multiple legal and financial hurdles. The settlement facilitates the ongoing wind-down process overseen by Plan Administrator Mohsin Meghji, who has been instrumental in managing the company’s obligations to creditors and customers. Notably, BlockFi partnered with Coinbase to enable eligible users—including those with Interest Accounts, retail loans, and private client accounts—to withdraw their remaining funds securely.
The withdrawal deadline set for April 28, 2024, underscores the urgency for customers to reclaim their crypto assets amid the company’s liquidation. The resolution of this lawsuit removes a significant obstacle, allowing BlockFi to focus on fulfilling its obligations to more than 100,000 creditors, including major stakeholders and the bankrupt hedge fund Three Arrows Capital.
BlockFi’s Broader Legal Landscape: Settlement with FTX and Creditors
In addition to the DOJ lawsuit settlement, BlockFi has made substantial progress in resolving claims related to the FTX collapse. In March 2023, BlockFi agreed to an $875 million settlement with the FTX and Alameda Research estates, addressing approximately $1 billion in claims. CEO Zac Prince’s testimony highlighted the direct impact of FTX founder Sam Bankman-Fried’s actions on BlockFi’s financial downfall.
The bankruptcy court’s approval of BlockFi’s Chapter 11 plan in September 2023 marked a critical milestone, outlining a structured repayment strategy for creditors. Despite owing roughly $10 billion, the plan aims to maximize recoveries for stakeholders while navigating the complex aftermath of one of the most significant crypto bankruptcies to date.
Legal and Regulatory Implications for Crypto Bankruptcy Cases
This settlement exemplifies the evolving legal landscape surrounding crypto bankruptcies, where federal agencies and bankruptcy courts must balance competing interests in asset recovery and creditor protections. The case underscores the importance of clear jurisdictional authority and cooperative resolution mechanisms to manage crypto assets effectively during insolvency proceedings.
Industry observers note that such settlements may set precedents for future disputes involving crypto asset seizures by government entities, particularly when assets are entangled in criminal investigations unrelated to the bankruptcy itself. The BlockFi case highlights the necessity for robust legal frameworks to support orderly wind-downs and protect investor interests in the rapidly maturing crypto market.
Conclusion
The resolution of the $35 million crypto asset transfer lawsuit between BlockFi’s bankruptcy administrator and the DOJ represents a significant advancement in the company’s bankruptcy process. By dismissing the case with prejudice, both parties have removed a major legal hurdle, enabling BlockFi to continue its efforts to repay creditors and facilitate customer withdrawals. This settlement also reflects broader trends in the intersection of crypto regulation, bankruptcy law, and federal enforcement, emphasizing the need for clear jurisdictional clarity and cooperative dispute resolution in the crypto industry’s evolving legal environment.
