BlockFi‘s recent reorganization proposal has been met with a new court lawsuit by disgruntled creditors of the bankrupt cryptocurrency lending startup.
BlockFi Allegedly Used Customer Money
The company submitted a document to the United States Bankruptcy Court in Trenton, New Jersey, on May 12 outlining its Chapter 11 plan of reorganization. Given that it owes its top 50 debtors close to $1.3 billion, the company claimed that selling BlockFi might not bring in enough money for them.
On May 15, in response, BlockFi creditors filed yet another court document, claiming that the company made deliberate efforts to postpone the trial.
Creditors Work with Brown Rudnick Law Firm
Creditors of BlockFi, who were represented by the legal firm Brown Rudnick, stated in a letter that BlockFi traded cryptocurrency valued at about $240 million before declaring bankruptcy in late November 2022. Creditors noted that the cryptocurrency lender liquidated the assets “at the nadir,” alluding to a severe market decline that followed FTX’s bankruptcy.
“Liquidating nearly all domestic cryptocurrency in November 2022 was a very poor decision,” the creditors claimed, claiming that the action has cost more than $100 million in the time since. In addition, the creditors highlighted “unnecessary and undesired tax consequences,” adding that the price of the sale had nothing to do with the company’s bankruptcy. The document states:
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.
Company Allegedly Using Customers’ Money
The corporation used $22.5 million in consumer funds to purchase a $30 million insurance coverage, according to BlockFi customers. That took place, in accordance with the creditors, soon after BlockFi liquidated all of its digital assets but before declaring bankruptcy.
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
By transferring the estate assets into the hands of new management, the plaintiffs requested that the court quickly put an end to the case. Such a scenario does not appear to be consistent with the debtors’ case agenda, the creditors remarked once more.
Leave a comment