BlockFi Settles $35 Million Dispute With DOJ Over Seized Crypto Assets

Judge Michael B. Kaplan of the U.S. Bankruptcy Court for the District of New Jersey has approved a settlement between the U.S. Department of Justice (DOJ) and BlockFi, concluding a $35 million legal dispute over seized crypto assets. This settlement marks the end of one of the largest bankruptcy-linked legal battles in the crypto industry. The agreement, which dismisses the case with prejudice, ensures that it cannot be reopened. Both parties have agreed to cover their own legal expenses.

The dispute centered around the DOJ's seizure of crypto assets, which were part of a criminal investigation into two Estonian nationals. The DOJ had argued that the bankruptcy court lacked the authority to block the asset transfer, turning the dispute into a question of legal jurisdiction as much as recovery. The DOJ clarified that the seized assets were not directly connected to BlockFi’s bankruptcy, but rather part of a broader criminal investigation.

This settlement is a significant milestone in BlockFi’s broader bankruptcy saga, which began in November 2022 following the collapse of FTX. The firm's financial downfall was triggered by FTX's collapse, leading to a series of legal and financial challenges. In March 2023, BlockFi resolved a $1 billion claim with FTX and Alameda Research through an $875 million settlement. CEO Zac Prince attributed the firm’s collapse directly to FTX founder Sam Bankman-Fried’s actions.

By September 2023, the court sanctioned BlockFi’s Chapter 11 plan to repay over 10,000 creditors, with the company still owing around $10 billion. In 2024, BlockFi set a 28th April 2024 deadline for customers to retrieve their crypto assets. In May 2024, BlockFi began winding down its web operations, teaming up with Coinbase to assist eligible users, such as retail loan holders and interest account clients, in recovering remaining funds.

BlockFi’s collapse serves as a cautionary tale for crypto lenders entangled with high-risk counterparties. It also highlights the growing vigilance of the U.S. Department of Justice in policing the crypto space. Beyond overseeing BlockFi’s legal resolution, the DOJ has taken decisive action to dismantle crypto-related crime networks, seizing $225.3 million in USDT tied to fraudulent investment schemes and shutting down 145 sites linked to the darknet marketplace. These developments underscore a critical shift toward stronger enforcement and accountability in the digital asset ecosystem.