BlockFi Clears Regulatory Hurdle To Repay $297M to Specific Customers

In a significant development within its ongoing bankruptcy proceedings, BlockFi has been granted authorization to refund $297 million to select customers, as reported by Reuters on May 11. This decision pertains specifically to customers who held funds in BlockFi’s Wallet rather than its interest-bearing accounts.

The ruling was delivered by Judge Michael Kaplan, who determined that while wallet users maintained ownership of their deposits, customers who stored funds in interest-bearing accounts relinquished ownership and granted control to BlockFi. Subsequently, the company utilized those assets for its lending activities.

However, customers who transferred their funds to the wallet accounts as a last-minute measure when BlockFi filed for bankruptcy in November last year will not be eligible for the refund. Approximately 48,000 users attempted to move a total of $375 million from interest accounts to wallet accounts during that period.

Although customer lawyers contended that this amount should also be returned, Judge Kaplan dismissed the claim, citing BlockFi’s failure to finalize those transactions and its prerogative to block such transfers during the service halt.

BlockFi’s legal representatives previously argued that returning the $375 million sum would dilute the value of funds recoverable by wallet users. They further asserted that such a payout could impede BlockFi from refunding any funds altogether due to a lack of fund segregation.

The tumultuous series of events began when BlockFi temporarily suspended user withdrawals and activity on November 10, 2022, in response to the collapse of the crypto exchange FTX. Subsequently, the company filed for bankruptcy on November 28.

Earlier in March, BlockFi had already initiated refunds of $100,000 to users in California.

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