BlockFi Administrator Settles $35 Million Crypto Asset Dispute with US Justice Department

• BlockFi settled a $35 million crypto dispute with the DOJ, and the case was dismissed permanently.

• The DOJ wanted to seize funds from Estonian citizens’ accounts, but both parties reached an agreement.

• BlockFi owes $10 billion to creditors and settled $875 million with FTX after its 2022 bankruptcy.

The administrator managing BlockFi’s bankruptcy proceedings has resolved a significant legal dispute with the US Department of Justice (DOJ) regarding transferring $35 million in cryptocurrency assets. Judge Michael B. Kaplan of the US Bankruptcy Court for the District of New Jersey approved the settlement agreement on Friday.

The settlement brings closure to a complex case that emerged during BlockFi’s bankruptcy wind-down process. The DOJ had demanded the transfer of crypto assets from BlockFi accounts belonging to two Estonian citizens as part of an unrelated criminal fraud investigation.

Court Approves Dismissal with Prejudice

The lawsuit originated in May 2023 when the DOJ filed claims seeking control over the disputed cryptocurrency holdings. Federal prosecutors argued that valid warrants authorized the seizure of funds from the Estonian citizens’ BlockFi accounts. The agency maintained that the bankruptcy court lacked jurisdiction to prevent the asset transfer.

Under the approved settlement terms, the case received dismissal with prejudice. This legal classification prevents either party from refiling the lawsuit in the future. The BlockFi administrator and the DOJ will cover their legal and court expenses.

Throughout the proceedings, Mohsin Meghji served as Plan Administrator for BlockFi’s wind-down estates. The Justice Department’s legal team included senior trial counsel Seth B. Shapiro and colleagues from the Civil Division’s Commercial Litigation Branch.

BlockFi’s Ongoing Bankruptcy Resolution

The crypto lending platform announced the closure of its web platform in May 2024 while establishing a partnership with Coinbase to facilitate customer withdrawals. Eligible account holders, including those with BlockFi Interest Accounts, retail loans, and private client services, gained access to withdrawal options through the Coinbase platform.

BlockFi filed for Chapter 11 bankruptcy protection in November 2022 following FTX’s dramatic collapse. The company established April 28, 2024, as the final deadline for customers to reclaim their cryptocurrency holdings.

The bankruptcy court approved BlockFi’s Chapter 11 reorganization plan in September 2023. The plan addresses repayment obligations to over 10,000 creditors. BlockFi faces approximately $10 billion in debts owed to more than 100,000 creditors.

Major creditors include the now-bankrupt hedge fund Three Arrows Capital among the top three debt holders. The company reached an $875 million settlement with FTX and Alameda Research estates in March 2024, resolving nearly $1 billion in outstanding claims.

CEO Zac Prince testified that Sam Bankman-Fried’s actions directly caused BlockFi’s financial collapse. The settlement with the DOJ represents another step toward concluding the complex bankruptcy proceedings that have affected thousands of cryptocurrency investors worldwide.