BlockFi Can Return Nearly $300M to Some Wallet Customers, Judge Rules

“The user interface did not accurately reflect the transactions,” Kaplan said in court

May 11, 2023 06:04 pm

rafapress/Shutterstock modified by Blockworks

BlockFi customers who held crypto in interest-bearing accounts don’t have a right to nearly $375 million in crypto after the bankrupt lender froze assets last year, a judge ruled.

However, customers who held custodial wallets did not give up the same ownership rights.

Around $300 million can be returned to customers who held crypto in custodial accounts, meaning non-interest-bearing accounts.

BlockFi froze transfers in early November of last year, and officially filed for bankruptcy on Nov. 28. It quickly followed FTX following the defunct exchange’s collapse.

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According to Judge Michael Kaplan, wallet transfers from interest-bearing accounts to custodial wallets did not occur after 8:15 pm ET on Nov. 10.

So, customers who still had crypto tied up in interest-bearing accounts – which totaled nearly $375 million – no longer have the right to those assets despite receiving email and in-app confirmation from BlockFi.

BlockFi, in court papers, said that $292 million in assets were stuck on the platform, all of which can be canceled by the company in Kaplan’s ruling.

“The user interface did not accurately reflect the transactions,” Kaplan said in court, according to a Bloomberg report.

“Quite simply, a customer’s withdrawal or transfer request on the user interface did not and does not automatically transfer digital assets,” Kaplan said, per Reuters.

The back-and-forth on account withdrawals has been ongoing since late last year.

Last December, the bankrupt lender filed a motion to allow some withdrawals to be processed though, even then, it was unclear if the interest-bearing accounts would be included in withdrawals.

In April, BlockFi was granted extra time to file its bankruptcy strategy. It has until May 15 to file its exit plan.

Kaplan reportedly granted the extension in hopes of making the continuation of the case smoother.

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