A U.S. court has given preliminary approval to a $13 million settlement between investors and the cryptocurrency lending company BlockFi, resolving a class-action lawsuit after an initial objection was withdrawn. This development marks a significant step toward compensating approximately 89,000 users who held interest accounts with BlockFi from March 2019 until its bankruptcy in November 2022.
The settlement addresses claims that BlockFi's officers made misrepresentations to investors, leading to the company's financial downfall, which was further exacerbated by the collapse of FTX Trading. The lawsuit, initially filed after BlockFi's bankruptcy in 2022, emerged amidst a broader downturn in the cryptocurrency market, triggered by the Terra ecosystem's collapse. This downturn led to several high-profile companies, including FTX, Celsius Network, and Voyager Digital, filing for bankruptcy.
The recent court order, issued by Judge Claire Cecchi in the U.S. District Court for the District of New Jersey, directs BlockFi's insurers to deposit over $13 million into an escrow account within 30 days. This order follows a February motion for preliminary approval, which was initially delayed due to an objection from one investor, Yacov Baron. However, Baron has since withdrawn his objection, paving the way for the settlement's progression.
The lawsuit against BlockFi alleged that the company sold unregistered securities through misrepresentations and omissions by then-CEO Zac Prince, COO Flori Marquez, and Gemini Trading. It was also alleged that Prince disregarded recommendations from BlockFi's risk management team regarding lending assets to Alameda Research, potentially contributing to the company's collapse.
The settlement is limited to interest-bearing account holders but leaves open the possibility of individual claims. Navodaya Singh Rajpurohit, a partner at Coinque Consulting, explained that investors who opted out of class settlements could pursue individual claims for specific harm, rather than being bound by the class settlement terms. However, most investors are expected to remain in the settlement class, as this agreement represents a tangible avenue for recovering lost funds.
BlockFi's bankruptcy, a key event in the 2022 "crypto winter," was triggered by the collapse of TerraUSD, leading to a liquidity crisis due to the company's $680 million exposure to FTX. BlockFi filed for Chapter 11 bankruptcy protection shortly after FTX's own filing. The company has since been working on its bankruptcy proceedings and has emerged from bankruptcy in 2023. In July 2024, BlockFi began repaying its creditors. Recently, BlockFi announced it would shut down its web platform this month and allow users to access funds via Coinbase.
The withdrawal of the final objection is expected to expedite the notification process for class members and the final distribution of funds. A hearing is scheduled for December 11 to determine final approval of the settlement plan and address any remaining objections. The resolution of this class action suit marks a significant milestone for investors affected by BlockFi's collapse and highlights the importance of legal recourse in the evolving cryptocurrency ecosystem.
