BlockFi’s Recoveries for Clients and Creditors Hinge on Claims Against FTX and Alameda

BlockFi, the crypto lender that recently filed for bankruptcy, has revealed that the success or failure of its litigation against its commercial counterparties, particularly FTX and Alameda, will determine the amount of funds that can be recovered by its clients and creditors. The company’s wind-down plan, submitted to the US Bankruptcy Court, indicates that the outcome of the claims against FTX and Alameda could impact recoveries by more than $1 billion.

The plan outlines a projected recovery of $1.06 billion in BlockFi Inc. Interest Account Claims, $216 million in BlockFi Lending LLC Private Client Account Claims, and $371 million in BlockFi International Ltd. Private Client and Interest Account Claims. However, the company acknowledges that the actual recoveries may differ materially from these projections.

BlockFi has around $355 million in crypto assets frozen on FTX, and a loan of $671 million to FTX’s trading arm, Alameda Research, both of which are also undergoing chapter 11 wind-down proceedings in Delaware. BlockFi’s claims against these counterparties will be a significant factor in determining the ultimate recoveries for clients and creditors.

In a recent ruling, a US Bankruptcy Judge ordered that BlockFi’s custodial wallet users be returned nearly $300 million in funds owed. The company’s liquidation plan, filed on Friday, provides for the return of non-estate digital assets held in client wallet accounts in connection with the Wallet Program in full, subject to applicable set-offs.

BlockFi’s bankruptcy proceedings are ongoing, and a hearing on the liquidation plan is scheduled for June 20. The outcome of the case will be closely watched by the crypto industry as it could have implications for the regulation of crypto lending platforms and their relationships with commercial counterparties.

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