Court Rules That $375M of Users’ Crypto in Interest Accs Belongs to BlockFi

According to a report from Thursday, May 11th, the bankruptcy court ruled that around $375 million worth of cryptocurrency that was placed in interest-bearing accounts at the time BlockFi froze withdrawals. The ruling is similar to the decision made in January with regard to user funds stuck on Celsius.

$375 Million Worth of User Assets Ruled to Be BlockFi’s Property

This Thursday, Judge Michael Kaplan ruled that all user funds that found themselves in interest-bearing accounts on BlockFi after 08:15 PM on November 10th are company property. That day, the company froze withdrawal due to the then-developing crisis surrounding Sam Bankman-Fried’s FTX.

The decision is somewhat controversial as numerous users not only attempted to transfer their funds to the more secure custodial wallets but also received email confirmation that the move was successfully completed. According to today’s ruling, the notifications received by clients are not valid and were divorced from the real state of the funds.

In January, a similar ruling was made with regard to assets stuck with Celsius—a digital assets company that filed for bankruptcy last summer. According to the court decisions, funds in interest-bearing accounts have effectively been transferred to the companies the due to the wording of the user agreements.

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Customers Manage to Reclaim Nearly $300 Million From BlockFi

On the other hand, funds in custodial wallets remain in the ownership of the customers. Therefore, also on Thursday, Judge Michael Kaplan also ruled that BlockFi is to repay nearly $300 million to its users. 

Having frozen withdrawals already on November 10th, and filed for bankruptcy on November 29th, BlockFi is generally seen as the first major victim of the FTX contagion. The downfall of Sam Bankman-Fried’s company also caused forced multiple other firms including Genesis Global Capital, and, albeit indirectly, Silvergate Bank, out of business.

Additionally, only days before announcing its liquidation, Silvergate was ordered to release nearly $10 million to BlockFi. More recently, on March 24th, BlockFi was greenlit to sell some of its cryptocurrency mining rigs worth around $4.7 million.

Do you think it is fair that user assets in interest-bearing accounts are considered company property in case of bankruptcy? Let us know in the comments below.