Friday, 19 April 2024

Crypto News

BlockFi used customer money to buy $30M insurance, creditors claim

BlockFi used customer money to buy $30M insurance, creditors claim

Disgruntled creditors of the bankrupt cryptocurrency lending firm BlockFi have submitted a new court filing in response to the company’s latest restructuring plan.

On May 12, BlockFi outlined its Chapter 11 plan of reorganization in a filing with the United States Bankruptcy Court in Trenton, New Jersey. The firm said that selling BlockFi might not generate enough value for creditors as it owes nearly $1.3 billion to its top 50 creditors.

In response, BlockFi creditors submitted another court filing on May 15, arguing that BlockFi deliberately took measures to delay the trial.

Represented by the law firm Brown Rudnick, BlockFi creditors wrote that BlockFi sold about $240 million worth of crypto before filing for bankruptcy in late November 2022. The creditors emphasized that the crypto lender sold the assets “at the nadir,” referring to a massive market slump following the collapse of FTX.

“Liquidating nearly all domestic cryptocurrency in November 2022 was a very poor decision,” the creditors said, arguing that the decision cost more than $100 million in the months since. The creditors also cited “unnecessary and undesired tax consequences,” also noting that the amount of the sale didn’t have any relation to its bankruptcy. The filing reads:

“Selling $240 million in cryptocurrency was never rationally related to bankruptcy funding needs, given that no reasonable estimate would peg the costs of this bankruptcy at $240 million.”

BlockFi customers went on to say that the company spent $22.5 million of customer money to buy a $30 million insurance policy. According to the creditors, that happened soon after BlockFi sold out the digital assets but before filing for bankruptcy.

Related: SEC revises $22M penalty against LBRY, seeks $111K instead

“By selling everything pre-petition, BlockFi gave itself a near limitless budget, essentially immune from bankruptcy’s adversary process, to run its case as long and as contentious as it sees fit without the ‘typical milestones’ in a DIP or cash collateral order,” the creditors wrote.

The plaintiffs called on the court to end the case as soon as possible by passing the estate assets “into the hands of new management.” The creditors again noted that such a scenario seems not to be consistent with the debtors’ case agenda.

BlockFi didn’t immediately respond to Cointelegraph’s request to comment. This article will be updated pending new comments.

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