In a significant development in the ongoing saga of two major bankrupt crypto firms, a U.S. bankruptcy court judge has lifted the automatic hold on claims settlement proceedings between FTX and BlockFi, paving the way for negotiations.
Court Order: A Path to Resolution
On November 13, United States Bankruptcy Judge Michael Kaplan ordered the end of the automatic hold that had previously stalled proceedings between FTX and BlockFi. This decision enables FTX debtors to pursue their claims against BlockFi in the bankruptcy proceeding.
The implications of this order are substantial, as it marks a crucial step towards resolving the complex web of claims and counterclaims between these two entities. Both firms declared Chapter 11 bankruptcy in November 2022 following the dramatic collapse of FTX earlier that month.
BlockFi's entanglement with FTX is significant, with approximately $355 million in funds frozen on FTX’s platform and an additional $671 million owed by Alameda Research. The court's order also stipulates that FTX debtors cannot expect to receive any affirmative distribution from BlockFi.
It mandates that both parties engage in mediation with the U.S. Bankruptcy Court for the District of Delaware, scheduled to begin no later than December 24, 2023.
BlockFi's Struggle and Testimony Against Bankman-Fried
This development comes after BlockFi CEO Zac Prince testified against Sam Bankman-Fried, the former CEO of FTX, during his five-week criminal trial.
Bankman-Fried was found guilty on all charges. Prince and his team provided evidence suggesting that BlockFi's bankruptcy was a direct result of FTX's collapse, despite ongoing bear market conditions. They claimed a loss of "a little over a billion dollars" due to the downfall of FTX and Alameda.
In August, the court allowed BlockFi to repay its U.S.-based Wallet customers, although withdrawals were still prohibited. Subsequently, in September, BlockFi creditors approved a bankruptcy restructuring plan, which the court ratified on September 26.
On October 24, BlockFi announced in a blog post its plans to start repaying some of its creditors and stated that withdrawals were "currently available to nearly all Wallet customers."