Blockfi has announced that the company will be returning $297 million to customers with deposits held in its Wallet program.
This information which was announced via Reuter on May 11, was granted by a United State judge.
Although according to Bankruptcy Judge, Micheal Kaplan, the funds to be returned do not apply to users of BlokFi Interest Accounts (BIA). He further added that the BIA account was mostly used byBlockFi for lending purposes and therefore they are property of the bankruptcy estates.
The implication of this is that the funds will later be used to pay off creditors.
The judge also decided that BIA users who sought to transfer money to wallets won’t be given a refund at this time. On Nov. 11, after the firm had frozen services due to the failure of FTX, around 48,000 BlockFi customers attempted to move $375 million from their BIA accounts to Wallet accounts.
In contrast, the Wallet program kept consumer contributions apart from other monies and did not pay dividends on them.
Although before BlockFi was ordered to release the fund, customers’ attorneys suggested that BlockFi should also refund their transfers. Judge Kaplan ruled that the lender has the right to deny requests for transactions during the closure in accordance with the terms of service for BlockFi.
BlockFi on the other hand disclosed that it left transfer options available in its front-end application to enable users transfer money between accounts and even get email confirmations. However, those transactions couldn’t be finished since BlockFi’s back end had disabled them.
After weeks of rumours regarding its financial stability in the wake of the FTX fiasco, BlockFi filed for Chapter 11 bankruptcy protection in late November. The cryptocurrency lender had $256.9 million in liquid assets at that time. According to court records, the main creditor was West Realm Shires Services Inc. (doing business as FTX US), which also owed the US Securities and Exchange Commission $30 million.
The business sought to recoup its debt by selling its cryptocurrency mining hardware and $160 million in loans secured by Bitcoin. BlockFi owes an estimated $10 billion to over 100,000 creditors.
By May 15, BlockFi must present its bankruptcy exit strategy. According to BlockFi’s attorney, Joshua Sussberg, the company is considering either selling some of its assets or finding a third party to support a restructuring deal.
As part of the bankruptcy proceedings, it was revealed on January 24 that BlockFi has been selling off $160 million in loans backed by about 68,000 Bitcoin BTC tickers down $27,034 mining rigs.
Given the state of the cryptocurrency market, some loans were already in default when BlockFi began the process of selling them off last year.
Despite the challenges faced by BlockFi, the fact that it is seeking to find a way to exit bankruptcy and repay its creditors is a sign that it is committed to rebuilding its reputation and restoring investor confidence. As the crypto market continues to evolve, it is important that platforms like BlockFi are held accountable for their actions, and that users are able to trust that their funds are being managed responsibly.
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