Investors Edge Closer to $13M BlockFi Payout After Legal Hurdle Clears

A U.S. court has granted preliminary approval for a $13 million settlement involving BlockFi, a former cryptocurrency lender, after the final objection to the deal was withdrawn. The settlement, which involves insurers paying over $13 million to an escrow account, is part of a class-action lawsuit affecting approximately 89,000 U.S. users who held interest accounts with BlockFi from March 2019 until the company filed for bankruptcy in November 2022. The settlement aims to provide compensation for users who lost access to their funds following BlockFi’s collapse. Judge Claire Cecchi of the U.S. District Court for the District of New Jersey has set a final approval hearing for December 11, where any remaining objections can be addressed. The court ordered that the insurers must transfer the funds to an escrow account within 30 days of the ruling.

The settlement comes after months of delays, primarily due to objections from a single investor, Yacov Baron, whose motion to intervene and objections to the deal were recently withdrawn. This development removes the last legal hurdle for the settlement’s approval, streamlining the process for compensating affected users. The lead plaintiffs’ attorneys emphasized the importance of expediting the preliminary approval to facilitate timely notice to class members and reduce complications related to the ongoing bankruptcy proceedings. The settlement covers claims related to unregistered securities, with allegations that BlockFi misrepresented or omitted key details regarding its operations. The firm’s leadership, including former CEO Zac Prince and COO Flori Marquez, were accused of misleading investors, and the company faced a broader crisis triggered by its $680 million exposure to FTX and its sister firm, Alameda Research.

BlockFi’s collapse in 2022 was part of a wider crisis in the crypto market, which began with the implosion of the TerraUSD stablecoin and continued with the bankruptcy of several major firms, including FTX, Celsius Network, and Voyager Digital. The fallout from FTX’s collapse exposed BlockFi’s significant financial entanglements, leading to a liquidity crisis that forced the company to halt withdrawals just one day after FTX filed for bankruptcy. Internal documents later revealed that BlockFi’s CEO had been aware of FTX’s precarious financial condition as early as August 2021. This, combined with continued business dealings with the firm, was seen as a contributing factor to BlockFi’s eventual downfall. The company has since been working to repay creditors, with a Chapter 11 bankruptcy plan approved in September 2023 to facilitate repayment to over 10,000 creditors. Additionally, BlockFi reached an $875 million settlement with FTX and Alameda Research to resolve outstanding claims.

The settlement process allows users who opted out of the class action to pursue individual claims. Legal experts have noted that such exclusions are common in complex bankruptcy cases and allow investors to seek compensation for specific harms, rather than being bound by the terms of the broader settlement. The issue of individual liability has also been highlighted in the context of the broader crypto market, as seen in the case of Celsius Network founder Alex Mashinsky, who was sentenced to 12 years in prison for fraud charges despite his company’s bankruptcy. This distinction between corporate and personal liability remains an important legal consideration in crypto-related bankruptcies and settlements.

As the final approval hearing approaches, legal and financial observers are closely monitoring the outcome. The settlement represents a significant step in resolving claims related to BlockFi’s collapse and offers potential relief to thousands of affected investors. However, the broader implications for the crypto industry remain under scrutiny, particularly in light of ongoing regulatory and legal developments. With the market still reeling from a series of high-profile failures, the outcome of this case could influence future regulatory approaches to crypto lending and investor protections.

Source:

[1] BlockFi Judge Urged to Approve $13 Million Settlement as ... (https://decrypt.co/336407/blockfi-judge-13-million-settlement-last-objector-withdraws)

[2] US Court Signs Off On $13M BlockFi Settlement After ... (https://cointelegraph.com/news/court-blockfi-settlement-investor-withdraws-objection)

[3] BlockFi Judge Urged to Approve $13 Million Settlement as ... (https://finance.yahoo.com/news/blockfi-judge-urged-approve-13-105140657.html)

[4] BlockFi Judge Urged To OK $13M Deal As Objector ... (https://www.law360.com/articles/2379552/blockfi-judge-urged-to-ok-13m-deal-as-objector-withdraws)