BlockFi DOJ Settlement Clears Path for Asset Recovery

U.S. Bankruptcy Judge Michael B. Kaplan in New Jersey has approved a settlement between BlockFi and the Department of Justice (DOJ) regarding the seizure of crypto funds. This settlement resolves a lawsuit filed in May 2023, which stemmed from the DOJ's efforts to confiscate funds from BlockFi accounts belonging to two Estonian nationals involved in an unrelated fraud case. The DOJ had argued that the bankruptcy court lacked jurisdiction to block the seizure.

The settlement dismisses the case with prejudice, meaning it cannot be refiled. Both parties will bear their own legal expenses. Mohsin Meghji, overseeing the wind-down of BlockFi’s bankruptcy estate, represented the crypto lender, while the DOJ’s legal team was led by Seth B. Shapiro of the Commercial Litigation Branch.

The lawsuit had complicated BlockFi’s ongoing efforts to return assets to customers, many of whom were left in limbo following the firm’s collapse in late 2022. The settlement now removes a key legal roadblock in the wind-down process and paves the way for continued asset recovery efforts.

BlockFi filed for Chapter 11 protection following the downfall of FTX, one of its major financial backers. Since then, it has worked with Coinbase to facilitate customer withdrawals, offering access to funds through the exchange. Customers with interest accounts, loans, or private portfolios were given until April 28, 2024, to reclaim their assets.

The settlement between BlockFi and the DOJ is a significant development in the ongoing bankruptcy proceedings. It resolves a contentious issue that had the potential to further delay the return of assets to BlockFi's customers. The dismissal of the lawsuit with prejudice ensures that the matter is conclusively resolved, allowing both parties to focus on other aspects of the bankruptcy process.

The settlement also highlights the complexities involved in crypto-related bankruptcy cases. The dispute over jurisdiction and the seizure of assets underscores the need for clear legal frameworks and guidelines in handling such cases. The resolution of this lawsuit is a step towards providing clarity and stability in the crypto industry, which has been grappling with regulatory and legal challenges.

Moving forward, BlockFi will continue its efforts to wind down its operations and return assets to its creditors. The settlement with the DOJ removes a significant obstacle in this process, allowing the company to focus on fulfilling its obligations to its customers and stakeholders. The approval of the settlement by Judge Kaplan is a positive development for BlockFi and its creditors, as it paves the way for a more streamlined and efficient resolution of the bankruptcy proceedings.