• BlockFi froze funds on its platform on Nov. 10, 2022
  • It filed for bankruptcy on Nov. 28, 2022, just days after FTX crashed
  • BlockFi received the court permission to return $297 million to its customers with non-bearing accounts

Bankrupt cryptocurrency lender BlockFi announced that its customers are one step closer to recovering some of their assets but the amount is heavily dependent on how much it could claw back from its claims against bankrupt hedge fund Alameda Research and FTX, bot crypto companies founded by the disgraced crypto kingpin Sam Bankman-Fried.

"Earlier today, we filed our disclosure statement with the Court. This is an important step forward in our Chapter 11 cases toward our goal of maximizing recoveries for our clients," BlockFi posted on Twitter over the weekend about the filing with the New Jersey court handling its insolvency proceedings.

The crypto lender filed for Chapter 11 bankruptcy protection on Nov. 28, 2022, just days after FTX and several of its affiliates filed for bankruptcy and saw the resignation of its CEO Bankman-Fried and his inner circle, including the CEO of Alameda Research, Caroline Ellison.

During BlockFi's initial filing, it pointed the blame on the liquidity crisis caused by the business' exposure to FTX, which at the time, started to unravel.

Because of the crypto lender's loans to Alameda Research, it became one of the high-profile casualties of the controversial collapse that led to the arrest and extradition to the U.S. of its head honcho Bankman-Fried.

The bankrupt crypto lender also held crypto assets on the collapsed crypto exchange, which it was not able to recover.

And, based on BlockFi's latest explanation, it turned out that the amount it can return to its creditors and clients is heavily dependent on how much it can claw back from its claims against Alameda Research and FTX.

"While recoveries will be based on a number of factors, the largest driver of higher recoveries are our claims against Alameda and FTX.," BlockFi said in a tweet.

The bankrupt crypto lender is scheduled to present its disclosure to the court on June 20, after which the solicitation process will start with the creditors receiving a copy of the disclosure and casting a vote on whether they support the plan or not.

As for the release of the funds, BlockFi said, "Clients will receive a release from BlockFi for any clawback claims that could be brought against them, including for transfers made prior to the Platform Pause on November 10, 2022."

Last week, BlockFi received the court permission to return $297 million to its customers with non-bearing accounts, except those who attempted to move funds into those accounts at the last minute.

"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," said U.S. Bankruptcy Judge Michael Kaplan in Trenton, New Jersey.

The judge, however, ruled against the repayment of $375 million in funds to clients who attempted to withdraw from BlockFi's BIA or interest-bearing accounts after the company announced and froze the funds in 2022.

"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," the judge said.

Illustration shows BlockFi logo