BlockFi Released Materials Regarding Proposed Reorganization Plan Early, Court Orders Them to Withdraw
The creditors committee said BlockFi’s communication with creditors was “loud” and “in your face”
Formatoriginal/Shutterstock, modified by Blockworks
BlockFi wasn’t supposed to release documents on May 13 associated with its Chapter 11 reorganization plan. The court has ordered the bankrupt crypto lender on May 18 to withdraw communications about the plan until the court approves all the materials.
The judge also told the debtors to publish a correction letter for the creditors on BlockFi’s Twitter feed within 24 hours of the court order being filed. They complied.
“BlockFi prematurely posted certain statements to the court docket, its website, and its Twitter feed on May 13, 2023, regarding a proposed plan of reorganization. We urge each of you to disregard those communications until such time as the publication and dissemination of such statements are authorized,” the statement read.
The Official Committee of Unsecured Creditors, a collective representative of BlockFi’s creditors, issued a harsh rebuke against the debtors for allegedly violating the law in a May 15 court filing.
“Apparently, the Debtors believe: (i) the rule of law does not apply to them; and/or (ii) they are free to ignore fundamental Chapter 11 regulations,” the committee wrote. “BlockFi’s actions were not only illegal, they undermine the entire bankruptcy process.”
The committee further claimed that Blockfi sent personalized emails to each creditor on Saturday — of which there are about 100,000 customers — even though many of them are represented legally and did not consent to “direct email communication of legal matters.”
Another part of the improper disclosure by BlockFi was a May 12 letter to creditors.
The letter, though BlockFi had a disclaimer at the bottom saying that it wasn’t soliciting votes on its Chapter 11 plan, had bits in it that the committee felt were “loud” and “in your face.” The committee also felt it wasn’t simply a procedural “notice of a bankruptcy development.”
“The proposed Plan is also the fastest way to return the funds currently held in Wallet Accounts back to customers, in kind, as quickly as possible,” one portion of the letter to the creditors read.
Blockworks previously reported that this letter also said that asset recovery for their clients is dependent on litigation against firms that defrauded BlockFi, including FTX, Alameda and Three Arrows Capital. The debtors said that recoveries could swing upwards of $1 billion based on the outcomes of the lawsuits.
The key date for creditors is July 28, 2023, which is the deadline for them to vote on the reorganization plan should the court approve it.
Updated May 23rd at 10:35am to clarify that BlockFi was ordered to withdraw communications relating to the plan.
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