Bankrupt BlockFi Looks to Restart Certain Customer Withdrawals

Bankrupt crypto lender BlockFi has asked a U.S. court to green light customer withdrawals that are locked up in the platform, court filings show.

Crypto held in BlockFi wallets belongs to customers and the company has “no legal or equitable interest,” in funds that were frozen when the platform halted operations on Nov. 10, a motion filed on Monday with the U.S. Bankruptcy Court for the District of New Jersey said.

BlockFi – one of the first victims of the contagion caused by crypto exchange FTX’s collapse in early November – filed for chapter 11 bankruptcy protection on Nov. 28, less than a month after halting withdrawals from the platform.

In addition to asking the court to allow customers to withdraw funds that remain in their BlockFi wallets, the company also wants to clear up the user interface that incorrectly reflected some transactions (after the platform had halted withdrawals) that in actuality never took place.

“Simply put, the [clients] were unable to, and did not, effectuate any transactions on the BlockFi platform beginning the moment of the Platform Pause Time Stamp,” the filing said, referring to the exact time (on Nov. 10, 2022 at 8:15 p.m. Eastern Time) when withdrawals were halted.

The company plans to delete any “attempted” withdrawals following the platform pause from the user interface to clear up any confusion, the filing said.

“For the avoidance of doubt, the Debtors do not seek to reverse any client deposits from outside the platform into Wallet Accounts which were received following the Platform Pause Time Stamp,” the filing said.

But if the relief order is approved by the New Jersey court, any customers who deposited new funds after the “platform pause” will also be able to withdraw those funds.

In an email to BlockFi users being shared on Twitter, the company said, “it is our belief that clients unambiguously own the digital assets in their BlockFi Wallet Accounts.” The email added BlockFi will be seeking similar relief with the Supreme Court of Bermuda with respect to wallets held at BlockFi International Ltd.

The court hearing on the motion is set for Jan. 9, 2023.