BlockFi’s bankruptcy team and the United States Department of Justice (DOJ) have settled a $35 million lawsuit over a dispute about crypto assets. Judge Michael B. Kaplan approved the agreement, resolving a case that BlockFi’s unsecured creditors committee filed in May 2023.
BlockFi and DOJ Reach a Settlement
The lawsuit started when the DOJ tried to seize crypto assets from BlockFi accounts. These assets were linked to two Estonian nationals involved in a different criminal fraud investigation. BlockFi’s creditors sought to prevent the DOJ from seizing these assets. After discussions, both sides agreed to dismiss the lawsuit with prejudice, meaning there can be no future claims regarding the assets.
Judge Kaplan approved the settlement, with each side to pay its legal fees. This agreement clarifies who has authority in federal criminal investigations versus bankruptcy cases. It allows BlockFi to focus on paying back creditors and helping customers withdraw their funds as it works through bankruptcy.
With this settlement, BlockFi can continue its bankruptcy process without dealing with the $35 million lawsuit. The DOJ can also focus on its criminal investigation without the distraction of the lawsuit. This settlement sets a precedent for similar cases involving crypto and bankruptcy.
Settlements in Crypto-Related Cases
The crypto space has seen numerous recent cases of dismissals similar to that of BlockFi. For example, Galaxy Digital, a crypto investment firm founded by Michael Novogratz, agreed to a $200 million settlement with the New York Attorney General’s office over allegations it promoted the algorithmic cryptocurrency LUNA while quietly selling millions of tokens at a profit.
Similarly, the U.S. Commodity Futures Trading Commission (CFTC) finalized a settlement with Gemini Trust Company, an American crypto exchange and custodian bank. The company is obligated to pay a $5 million civil penalty and is prohibited from making false or misleading statements to the CFTC.
BlockFi’s focus on paying back its creditors sets a standard for how to balance federal enforcement with handling insolvency. As the firm works through its shutdown, the crypto industry is watching for lessons on managing assets during tough times. This resolution shows how important it is to work together in solving the complex issues of digital finance.
