The legal dispute between BlockFi and the US Department of Justice (DOJ) over $35 million in crypto assets has officially been resolved, following court approval of a settlement reached by both parties.
On Friday, Judge Michael B. Kaplan of the US Bankruptcy Court for the District of New Jersey signed off on the agreement, which dismisses the case with prejudice, barring future litigation on the matter.
The lawsuit, filed in May 2023, aimed to transfer over $35 million in digital assets from BlockFi’s platform to the US government.
The DOJ argued that it held valid warrants to seize the funds as part of a criminal fraud case against two Estonian nationals.
The case was unrelated to BlockFi’s bankruptcy and stemmed from charges against the Estonian citizens, whose assets were held in BlockFi accounts.
The DOJ maintained that the bankruptcy court did not have jurisdiction to prevent the government from seizing the funds.
However, the dispute emerged during the broader bankruptcy proceedings following BlockFi’s collapse in late 2022.
Under the terms of the settlement, each side will bear its own legal costs and fees.
Mohsin Meghji, the Plan Administrator overseeing BlockFi’s wind-down process, represented the crypto lender in the case.
The DOJ was represented by senior trial counsel Seth B. Shapiro and his team from the Civil Division’s Commercial Litigation Branch.
Customer withdrawals progress as platform winds down
The resolution of the DOJ lawsuit is the latest milestone in BlockFi’s ongoing bankruptcy wind-down process.
In May 2023, the company announced that it would be shutting down its web platform and partnering with Coinbase to facilitate withdrawals for eligible customers.
Clients with BlockFi Interest Accounts, retail loans, and private client holdings were directed to use Coinbase for asset recovery.
The firm set a withdrawal deadline of April 28, 2024, for customers to claim their crypto holdings.
The Chapter 11 process has involved efforts to return funds to customers while navigating complex legal claims and settlements.
The platform’s collapse came in the wake of the FTX bankruptcy in November 2022, which significantly impacted the crypto lending sector.
Settlement with FTX and creditors ongoing
BlockFi has also made progress in settling claims with other parties tied to its bankruptcy.
In March 2023, the company reached an $875 million settlement with the estates of FTX and Alameda Research, resolving approximately $1 billion in claims.
BlockFi CEO Zac Prince testified that the actions of FTX founder Sam Bankman-Fried were a direct cause of BlockFi’s downfall.
In September 2023, the bankruptcy court approved BlockFi’s Chapter 11 plan, allowing the firm to begin distributing funds to over 10,000 creditors.
BlockFi owes around $10 billion in total liabilities to more than 100,000 creditors, including major claims from hedge fund Three Arrows Capital and other institutional entities.
As the bankruptcy estate continues to resolve legal disputes and finalize settlements, BlockFi’s wind-down aims to maximize recoveries for affected users and creditors while closing one of the high-profile failures from the 2022 crypto market crash.
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