Bankruptcy Court Approves Dismissal of $35M Claim

A New Jersey bankruptcy court has approved the dismissal of a $35 million lawsuit between BlockFi's bankruptcy administrator and the U.S. Department of Justice. Judge Michael B. Kaplan signed off on the settlement Friday, ending a year-long dispute over crypto assets tied to unrelated fraud cases.

Origins of the Legal Battle

The conflict began in May 2023 when federal prosecutors sought to transfer funds from BlockFi accounts belonging to two Estonian nationals. The DOJ maintained these assets were subject to seizure warrants in a separate criminal investigation. At its peak, the case raised jurisdictional questions about bankruptcy courts' authority over government seizure actions.

——This settlement represents a significant compromise between creditor protections and law enforcement priorities—— noted financial restructuring expert Mark Williams.

Terms of the Resolution

The agreement includes several key provisions: • Case dismissal with prejudice (permanent resolution) • Each party covering its own legal costs • No admission of liability by either side

The settlement allows BlockFi to continue focusing on its wind-down process while avoiding protracted litigation. 【Court records show】 the crypto lender still owes approximately $10 billion to over 100,000 creditors.

Broader Bankruptcy Context

This resolution marks the latest development in BlockFi's complex bankruptcy proceedings. The company collapsed in November 2022 following FTX's failure, with its CEO blaming Sam Bankman-Fried's actions for the downfall. Earlier this year, BlockFi reached an $875 million settlement with FTX's estate.

Customer Asset Recovery Status

BlockFi has partnered with Coinbase to facilitate customer withdrawals, though the platform officially closed in May 2023. The bankruptcy estate set April 2024 as the deadline for claims submissions, with distributions continuing through the court-supervised process.

Interestingly, while this case concludes, BlockFi still faces other legal challenges including disputes with Three Arrows Capital. The bankruptcy court approved the company's Chapter 11 repayment plan last September, establishing mechanisms to compensate creditors over time.

Regulatory Implications

The settlement avoids creating precedent on bankruptcy courts' authority versus government seizure powers—a potentially contentious issue given increasing crypto-related enforcement actions. Legal observers suggest the DOJ may have compromised to prevent delays in other cases.

As the crypto winter continues thawing, this resolution removes one obstacle in BlockFi's winding down process while demonstrating regulators' evolving approach to digital asset bankruptcies.