SEC Delays $30 Million Fine from Bankrupt Crypto Lender BlockFi Until Investor Repayment

Bankrupt crypto lender BlockFi has received permission from the U.S. Securities and Exchange Commission (SEC) to delay a $30 million fine until after investors have been repaid, according to a court filing on Thursday. The fine is part of a $50 million penalty that BlockFi owed the SEC for failing to register with the regulator for the offering and sale of its crypto lending product. Although BlockFi agreed to the settlement in February 2022, it filed for bankruptcy in November following the collapse of crypto exchange FTX.

In ongoing Chapter 11 bankruptcy proceedings, the SEC argued that its claims should be considered “general unsecured claims.” However, in an agreement reached on June 22, the SEC agreed to forgo the payment in order to maximize the amount that can be distributed to investors and avoid any delays in the distribution process. Legal expert Sasha Hodder, founder of Hodder Law, commented that the SEC was likely among the first creditors in line to receive payment from BlockFi.

A New Jersey bankruptcy court judge ruled in May that BlockFi customers could be repaid $300 million from funds held in custodial wallets on the platform. While the bankrupt estate has presented a reorganization plan to the court, scheduled for a hearing in July, BlockFi has stated that the $1 billion in claims against FTX and its sister trading firm Alameda will be the primary source of fund recoveries for customers and creditors. This indicates that the resolution of claims against FTX will play a significant role in determining the amount available for repayment.

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