Bankruptcy Judge Approves $300M Payment to BlockFi Customers-Report

Based on a May 11th ruling, BlockFi custody wallet users may receive up to $300 million as a refund. This ruling, according to a Coindesk report, comes after a bankruptcy judge clarified that assets in custodial wallets belong to customers and not the embattled cryptocurrency exchange. Specifically, under bankruptcy law funds which belong to customers are meant to be returned.

The issue of returning customers’ funds to them has been ongoing for several months. During BlockFi’s first court appearance in Trenton, New Jersey after the collapse of FTX, the exchange requested consent to continue its operations while it tries to figure out a way to pay back all affected customers. BlockFi was optimistic about finding a potential buyer which would influence the refund process.

At the same time, BlockFi made attempts to recover funds owed by other cryptocurrency exchanges. One of such significant funds was the $400 million given to FTX sister trading company Alameda Research. 

Sad Reality for BlockFi Interest Account Holders

BlockFi’s interest-bearing account holders, otherwise known as BIA we’re given sad news. While the court has declared that the funds in the custodial wallets are meant for customers, Judge Michael Kaplan ruled against repaying another $375 million which customers tried to withdraw from BIA accounts. 

“The court finds that all digital assets held by the debtors in custodial omnibus wallets are indeed client property, and not property of the bankruptcy estates, subject, of course, to possible avoidance and clawback rights,” the judge stated.

“No transfer request by customers between the BIA and the custodial wallet accounts initiated after 8.15 pm on November 10, 2022 were effectuated and completed.” Meanwhile, several users had seen their front-end display confirmations that their transaction was completed and funds had been moved successfully.

Still referring to BIA account holders, Kaplan stated that they were all aware of the risks involved in this investment before they plunged their assets. They all did it in exchange for the chance of a greater return, that is, they were prepared for whatever outcome the investment resulted in.

This is however not the case for customers with custodial wallets. Notably, they have no share in the risks and should therefore not be affected by the sad end of BIA account holders.