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BlockFi customers who held funds in custodial wallets can be refunded nearly $300 million, a bankruptcy judge said on Thursday.
The judge’s ruling on the dispute between some customers and BlockFi comes amid bankruptcy proceedings for the troubled crypto lender.
According to Judge Michael Kaplan, the assets held in those wallets belong to customers and not the bankruptcy estate. CoinDesk highlighted the judge’s verdict that came during a hearing in the US Bankruptcy Court for the District of New Jersey, with part of the ruling stating:
“The court finds that all digital assets held by the debtors in custodial omnibus wallets are indeed client property, and not property of the bankruptcy estates, subject, of course, to possible avoidance and clawback rights.”
Interest-bearing accounts customers face losses
But while Judge Kaplan ruled favourably for the customers who had $300 million or so in custodial wallets, he didn’t bear such good news for clients of who had funds in BlockFi interest-bearing accounts (BIA).
Per the ruling, about $375 million in funds in the accounts as of 10 November had when BlockFi paused withdrawals were part of the bankruptcy estate. He noted that clients had yielded control of the funds to the company at the time in exchange for interest.
While BIA account holders knew of the risks associated with putting money in those accounts, such risks cannot now be put on custodial wallet holders, the judge said. The developments mean clients who held money in custodial wallets are likely to get their money soon, while creditors who had BIA accounts face potential losses.
BlockFi filed for Chapter 11 Bankruptcy in November last year, with the company’s troubles mounting as the collapse of the cryptocurrency exchange FTX reverberated across the crypto industry. The regulatory crackdown that followed also saw multiple crypto companies halt their staking and earn programs. Some companies chose to exit the USA altogether.
At the time of its bankruptcy filing, BlockFi said it had over 100,000 creditors.
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