BlockFi used customer money to buy $30M insurance, creditors claim
Creditors of the bankrupt cryptocurrency lending firm, BlockFi, have filed a court document in response to the company's restructuring plan. BlockFi had outlined its Chapter 11 reorganization plan, stating that selling the company may not yield sufficient value to repay its top 50 creditors, who are owed nearly $1.3 billion.
In their filing on May 15, the creditors, represented by law firm Brown Rudnick, claimed that BlockFi intentionally delayed the trial and highlighted that the company had sold approximately $240 million worth of crypto assets before filing for bankruptcy in late November 2022. The creditors argued that this decision, made during a market downturn following the collapse of FTX, resulted in significant losses of over $100 million since then. They also noted the tax consequences and questioned the justification for such a large sale given the bankruptcy's funding needs.
Furthermore, the creditors alleged that BlockFi used $22.5 million of customer funds to purchase a $30 million insurance policy, which occurred shortly after selling the digital assets but before filing for bankruptcy. The creditors contended that this move allowed BlockFi to have a substantial budget and avoid typical bankruptcy milestones, extending the length and contentiousness of the case.
The plaintiffs urged the court to expedite the resolution by transferring the estate assets to new management, asserting that this approach did not align with the debtors' case agenda. BlockFi had not provided an immediate response to requests for comment at the time of reporting.