Bankrupt cryptocurrency firms BlockFi and FTX have come to a preliminary settlement, where FTX has agreed to compensate BlockFi with up to $874.5 million. This significant step forward, pending the approval of U.S. Bankruptcy Judge John Dorsey in Wilmington, Delaware, aims to amicably resolve their disputes and could herald a complete recovery for BlockFi’s clientele.
A Comprehensive Settlement
The agreement, revealed in a court filing dated March 6, outlines FTX’s commitment to satisfy BlockFi’s claims, summing nearly a billion dollars. In addition to the monetary settlement, FTX will relinquish “millions of dollars of avoidance claims and other counterclaims” against BlockFi. The payment includes a $185.2 million claim tied to customer assets at FTX.com and a $689.3 million claim against Alameda Research regarding loans provided by BlockFi.
A notable aspect of this settlement is the categorization of $250 million as a “secured claim,” ensuring BlockFi’s preferential repayment post-FTX’s bankruptcy resolution. The balance hinges on FTX’s capacity to reimburse its own customers and creditors.
BlockFi’s bankruptcy team attributes this positive outcome to “early mediation,” which not only reduced litigation expenses but also redirected potential legal funds towards customer reimbursements. They emphasized the exceptional nature of this settlement for BlockFi and its customers, surpassing initial expectations.
Background of Bankruptcy and Litigation
BlockFi sought Chapter 11 bankruptcy protection on November 28, 2022, reeling from the abrupt downfall of FTX the same month. The ensuing period saw mutual lawsuits between the two entities over financial entanglements.
BlockFi’s lawsuit claimed over $1 billion from FTX, stemming from a $400 million credit line and close to $900 million loaned to Alameda Research. This loan was largely backed by FTT tokens, which drastically lost value following FTX’s collapse. BlockFi also pursued claims against a holding company owned by Sam Bankman-Fried to recover 56 million Robinhood shares, purportedly pledged as collateral.
Conversely, BlockFi was indebted to FTX.US for up to $275 million, connected to a 2022 rescue financing agreement. The company’s bankruptcy disclosures revealed it owed about $10 billion across over 100,000 creditors, including significant amounts to its top three creditors and $220 million to the defunct crypto hedge fund Three Arrows Capital.
Future Prospects for BlockFi Customers
With BlockFi exiting bankruptcy in October 2023 and initiating a wallet service for customer withdrawals, there’s renewed hope for its clients. Those with funds in both BlockFi Wallet and interest-bearing accounts might see some form of asset withdrawal in 2024, although specific payout estimates remain uncertain.
This settlement marks a pivotal moment in cryptocurrency bankruptcy proceedings, potentially setting a precedent for how disputes of this magnitude are resolved, prioritizing customer and creditor recovery.
