BlockFi used customer money to buy $30M insurance, creditors claim

Disgruntled creditors of the bankrupt cryptocurrency lending steadfast BlockFi person submitted a caller tribunal filing successful effect to the company’s latest restructuring plan.

On May 12, BlockFi outlined its Chapter 11 program of reorganization successful a filing with the United States Bankruptcy Court successful Trenton, New Jersey. The steadfast said that selling BlockFi mightiness not make capable worth for creditors arsenic it owes astir $1.3 cardinal to its apical 50 creditors.

In response, BlockFi creditors submitted different tribunal filing connected May 15, arguing that BlockFi deliberately took measures to hold the trial.

Represented by the instrumentality steadfast Brown Rudnick, BlockFi creditors wrote that BlockFi sold astir $240 cardinal worthy of crypto earlier filing for bankruptcy successful precocious November 2022. The creditors emphasized that the crypto lender sold the assets “at the nadir,” referring to a massive marketplace slump pursuing the illness of FTX.

“Liquidating astir each home cryptocurrency successful November 2022 was a precise mediocre decision,” the creditors said, arguing that the determination outgo much than $100 cardinal successful the months since. The creditors besides cited “unnecessary and undesired taxation consequences,” besides noting that the magnitude of the merchantability didn’t person immoderate narration to its bankruptcy. The filing reads:

“Selling $240 cardinal successful cryptocurrency was ne'er rationally related to bankruptcy backing needs, fixed that nary tenable estimation would peg the costs of this bankruptcy astatine $240 million.”

BlockFi customers went connected to accidental that the institution spent $22.5 cardinal of lawsuit wealth to bargain a $30 cardinal security policy. According to the creditors, that happened soon aft BlockFi sold retired the integer assets but earlier filing for bankruptcy.

Related: SEC revises $22M punishment against LBRY, seeks $111K instead

“By selling everything pre-petition, BlockFi gave itself a adjacent limitless budget, fundamentally immune from bankruptcy’s adversary process, to tally its lawsuit arsenic agelong and arsenic contentious arsenic it sees acceptable without the ‘typical milestones’ successful a DIP oregon currency collateral order,” the creditors wrote.

The plaintiffs called connected the tribunal to extremity the lawsuit arsenic soon arsenic imaginable by passing the property assets “into the hands of caller management.” The creditors again noted that specified a script seems not to beryllium accordant with the debtors’ lawsuit agenda.

BlockFi didn’t instantly respond to Cointelegraph’s petition to comment. This nonfiction volition beryllium updated pending caller comments.

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