Crypto News: BlockFi Customers Seek Consideration of $375 Million in Crypto Assets as Property in Ongoing Bankruptcy Case
In the midst of BlockFi’s Chapter 11 bankruptcy case, customers are requesting that approximately $375 million worth of various cryptocurrencies be recognized as their property. This plea comes as a response to a group of customers arguing in court that the eight-day delay in shutting down the BlockFi app following the suspension of transactions justifies their request.
During a hearing held in New Jersey, customers of BlockFi contended that the company should acknowledge the $375 million in cryptocurrency as their rightful property. BlockFi, once a prominent centralized cryptocurrency lending platform, filed for bankruptcy in 2022.
Customers maintain that the delay in app shutdown following the suspension of transactions created a deceptive impression that their accounts were still active and being credited or debited. As a result of this confusion, they believe they should be entitled to a portion of the $297 million that the bankrupt crypto lender allowed customers to withdraw.
BlockFi’s business model allowed customers to deposit crypto into either interest-bearing accounts or custody accounts, with the flexibility to transfer between the two. However, following the collapse of FTX, a now-defunct cryptocurrency exchange, BlockFi suspended crypto withdrawals and transfers between customer accounts on November 10.
Subsequently, BlockFi filed for Chapter 11 bankruptcy protection on November 28 in a New Jersey court. In response, a group of customers opposed the motion, arguing that even after the bankruptcy filing and BlockFi’s official statement regarding the suspension of transfers, the app continued to send notifications that transfer requests were being processed.
According to BlockFi’s counsel, Michael Sirota, technical issues prevented the company from disabling the app until November 18. This was despite the inclusion of pop-ups informing customers of the suspension of transactions, starting on the afternoon of November 11. Sirota noted that throughout the years of the company’s operation, no one had attempted to disable the app’s functionality.
BlockFi’s inability to repay all its creditors poses a significant challenge. The unsecured creditors’ committee, which includes a group of account holders who transferred assets to custody accounts prior to the cutoff date, disputes an objection raised on the grounds of fairness. Both parties argue that BlockFi lacks sufficient assets to fulfill all its obligations to creditors. Consequently, the account holders who transferred assets before November 10 should not be obligated to share assets that rightfully belong to them.
Judge Kaplan acknowledged that the case would inevitably result in winners and losers due to the insufficient assets to satisfy every claim. A bench ruling on the matter is expected to be issued on May 11.
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