The administrator overseeing BlockFi’s bankruptcy wind-down has reached a settlement with the US Department of Justice (DOJ) to dismiss a $35 million crypto asset transfer lawsuit, marking a resolution to a contentious chapter in the crypto lender’s bankruptcy proceedings. 

The agreement, approved by Judge Michael B. Kaplan of the US Bankruptcy Court for the District of New Jersey on Friday, effectively ends the dispute with the case being dismissed with prejudice, preventing it from being refiled.

The lawsuit, filed in May 2023, centered on the DOJ’s attempt to seize over $35 million in crypto assets from BlockFi accounts linked to two Estonian citizens involved in a criminal fraud case unrelated to the company’s bankruptcy. The DOJ had argued that it possessed warrants to seize the funds and challenged the bankruptcy court’s jurisdiction to stop the transfer of the assets.

Under the settlement terms, both parties will bear their own legal costs, allowing BlockFi to continue its wind-down without the looming litigation. Mohsin Meghji, Plan Administrator for BlockFi’s wind-down estates, represented the crypto firm, while the DOJ was represented by senior trial counsel Seth B. Shapiro and his team from the Civil Division’s Commercial Litigation Branch.

In May last year, BlockFi announced it would shut down its web platform while partnering with Coinbase to facilitate customer withdrawals. Eligible users, including those with Interest Accounts, retail loans, and private client accounts, were encouraged to use Coinbase to access their remaining funds.

BlockFi, which declared bankruptcy in November 2022 following the collapse of FTX, set a final withdrawal deadline of April 28, 2024, for customers to reclaim their assets. The firm’s collapse reflected the wider instability within the crypto lending sector during the crypto winter, which saw liquidity drying up across the industry.

The settlement with the DOJ follows BlockFi’s prior resolution with the FTX and Alameda Research estates, with an $875 million settlement approved in March last year to address nearly $1 billion in claims. During court proceedings, BlockFi CEO Zac Prince testified that the actions of FTX founder Sam Bankman-Fried directly led to his company’s bankruptcy.

In September 2023, the bankruptcy court approved BlockFi’s Chapter 11 plan, which aims to repay over 10,000 creditors. The company currently owes approximately $10 billion to more than 100,000 creditors, including significant debts to its largest creditors and to the bankrupt hedge fund Three Arrows Capital, as it continues the lengthy process of asset recovery and creditor repayment within the ongoing crypto bankruptcy landscape.

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