Creditors Accuse Bankrupt BlockFi of Misusing Funds for $30M Insurance Purchase
BlockFi and its creditors clash over a recently published restructuring plan.
Creditors of BlockFi, the now insolvent cryptocurrency lending firm, have voiced their concerns over the company’s recent restructuring plan.
The strategy, outlined in a Chapter 11 reorganization plan filing with the United States Bankruptcy Court in Trenton, New Jersey, on May 12th, suggested that selling BlockFi may not provide sufficient returns for its creditors, given its outstanding debt of nearly $1.3 billion to the top 50 creditors alone.
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Counteracting this claim, creditors, represented by the law firm Brown Rudnick, submitted a follow-up court filing on May 15th.
BlockFi creditors accused the firm of intentionally delaying the trial and pointed out that the company had liquidated around $240 million in cryptocurrency assets before declaring bankruptcy in November 2022.
They argued that the timing of the sale – at the height of a massive market downturn following FTX’s collapse – was a poor financial decision that cost over $100 million in the following months.
The creditors further highlighted that BlockFi’s sale of these assets had not been in line with its bankruptcy needs, stating:
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.
Creditors also took issue with BlockFi’s alleged use of $22.5 million of customer funds to secure a $30 million insurance policy, arguing that this took place shortly after the company had sold its digital assets.
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 have called for an expedited end to the case and a transfer of the company’s assets to new management. BlockFi has yet to provide a public response to these allegations.