How BlockFi Achieved Full Recovery for Customers: A Bankruptcy Success Story

BlockFi, the defunct crypto lender, has achieved a major milestone in its bankruptcy proceedings by selling its FTX claims at a substantial premium. This sale paves the way for a full recovery of eligible customer and general unsecured creditor claims.

Mohsin Y. Meghji, BlockFi‘s Plan Administrator and Managing Partner of M3 Partners, detailed the development in a report to the United States Bankruptcy Court for the District of New Jersey. The transaction, which closed on July 10, was executed at a premium to the face value of the FTX claims. This sale is expected to facilitate a near-term final distribution to BlockFi’s creditors.

In March 2024, BlockFi reached a settlement with FTX and Alameda Research, securing $874.5 million in claims against the bankrupt entities. The Plan Administrator initiated a sale process on June 24, culminating in the acceptance of the highest and best bid, which significantly exceeded the face value of the claims. This strategic move aimed to maximize returns for BlockFi customers and mitigate risks associated with the timing and execution of the claims. Meghji stated:

This transaction marks a final chapter in the wind-down and is the best possible outcome for customers of BlockFi.

He emphasized the remarkable nature of the recoveries, noting that such results seemed unattainable when the cases were filed in November 2022. The Plan Administrator intends to commence the final customer distribution as expeditiously as possible.

BlockFis platform is no longer active, and in-kind distributions will only be available through a partnership with Coinbase. For international creditors, additional identity verification and compliance with “Know Your Customer” (KYC) standards are required. Cash distributions will be handled by Kroll and its payment processing partner, Digital Disbursements.

The sale of FTX claims not only benefits BlockFis customers but also marks a notable victory for Diameter Capital Partners, a hedge fund that purchased FTX claims early on. These claims, initially expected to fetch modest returns, have surged to over 100 cents on the dollar, yielding significant profits.

The bankruptcy court approved BlockFi‘s repayment plan for its 10,000 creditors in September 2023. The firm’s ability to achieve full recovery for its customers highlights the effective execution of its bankruptcy strategy. This outcome is a positive development in the often tumultuous world of crypto lending.

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