Key Takeaways
- The lawsuit has been dismissed with prejudice, meaning it cannot be revived in future court proceedings.
- The lawsuit sought to transfer more than $35 million in crypto from BlockFi to the US government.
Leading crypto exchange, BlockFi Inc.’s bankruptcy estate has dropped a lawsuit, which looked to transfer a staggering $35 million in crypto assets from the exchange to the U.S. government.
The motion to dismiss the lawsuit filed in May 2023 was jointly filed by BlockFi’s plan administrator and the Department of Justice(DOJ) and was approved by Judge Michael B. Kaplan of the U.S. Bankruptcy Court for the District of New Jersey on Friday, closing a chapter in one of the more complex issues in the company’s wind-down.
The case stemmed from a 2023 DOJ effort to seize crypto assets linked to two Estonian nationals involved in a separate fraud investigation. These funds were sitting in BlockFi accounts when the agency moved to take control. BlockFi’s estate opposed the seizure, while arguing that the assets were part of the broader Chapter 11 proceedings and subject to bankruptcy protections.
Rather than continue the legal battle, both parties reached a resolution. The lawsuit has been dismissed with prejudice, meaning it cannot be revived in future court proceedings. Each side has agreed to cover its own legal costs. Mohsin Meghji, serving as BlockFi’s plan administrator, represented the bankrupt crypto lender. DOJ attorneys, led by Seth B. Shapiro from the Civil Division’s Commercial Litigation Branch, represented the U.S. government.
This legal clash played out alongside BlockFi’s broader bankruptcy case, which began in late 2022 following the collapse of FTX and mounting liquidity pressures. In partnership with Coinbase, the estate began processing withdrawals in 2024 for eligible customers holding interest accounts, loans, or private portfolios.
BlockFi’s exposure to other collapsed firms, mainly FTX and bankrupt crypto hedge fund Three Arrows Capital (3AC), contributed to its financial downfall. The exchange filed for Chapter 11 bankruptcy in November 2022. A separate legal settlement between BlockFi and the FTX/Alameda bankruptcy estates resolved roughly $1 billion in competing claims, with BlockFi recovering a portion of those funds.
The court-supervised restructuring plan was approved in September 2023. Estimates show BlockFi owes up to $10 billion to over 100,000 creditors, including $1 billion to its three largest creditors and $220 million to 3AC.
BlockFi claimed 3AC committed fraud with the money it borrowed and argued it also shouldn’t be entitled to a potential repayment.
Several creditors previously accused the firm of overlooking lapses before transacting with FTX and its trading firm Alameda Research before the collapse.