BlockFi customers want $375m in various crypto assets to be considered as their property in the ongoing Chapter 11 bankruptcy case.
This comes after a group of customers argued in court that the eight-day delay in shutting down the app after transaction suspension warrants their request.
The lead-up to bankruptcy
During a hearing in New Jersey, BlockFi customers argued that the company should count $375m in cryptocurrency as their property.
BlockFi was a leading centralized cryptocurrency lending platform that filed for bankruptcy in 2022.
Customers claim that the delay in shutting down the app after BlockFi suspended transactions created an illusion that their accounts were being credited and debited.
Because of this confusion, they should be entitled to a share of the $297m that the bankrupt crypto lender permitted customers to withdraw.
BlockFi’s business model allowed customers to deposit crypto into either interest-bearing accounts or custody accounts where they could transfer between the two.
However, following the collapse of FTX, a defunct cryptocurrency exchange; BlockFi suspended crypto withdrawals and transfers between customer accounts on Nov. 10.
Eventually, they filed for Chapter 11 Bankruptcy protection on Nov. 28 in a New Jersey court.
In response, a group of customers opposed the motion. They argued that even after the bankruptcy filing and BlockFi officially saying they had halted transfers, the app was responsive with notifications that transfer requests were being processed.
According to BlockFi’s counsel, Michael Sirota, technical issues prevented the company from disabling the app until Nov. 18.
This was despite adding popups informing customers that transactions were suspended starting on the afternoon of Nov. 11.
Sirota noted that in the company’s years of operation, no one had attempted to disable the app’s functionality.
BlockFi can’t pay all their creditors
BlockFi’s unsecured creditors’ committee, including a group of account holders who transferred assets to the custody accounts prior to the cutoff, dispute an objection that has been raised on the grounds of fairness.
The two argue that BlockFi does not have sufficient assets to pay all its creditors. Therefore, the custody account holders prior to Nov. 10 should not be required to share assets that are rightfully theirs.
Judge Kaplan acknowledged that the case would have “winners and losers” due to the insufficient assets to pay every claim.
He plans to issue a bench ruling on May 11.