BlockFi used customer money to buy $30M insurance, creditors claim
Disgruntled creditors of the bankrupt cryptocurrency lending firm BlockFi have submitted a new court filing in response to the company’s latest restructuring plan.
On May 12, BlockFi outlined its Chapter 11 plan of reorganization in a filing with the United States Bankruptcy Court in Trenton, New Jersey. The firm said that selling BlockFi might not generate enough value for creditors as it owes nearly $1.3 billion to its top 50 creditors.
In response, BlockFi creditors submitted another court filing on May 15, arguing that BlockFi deliberately took measures to delay the trial.
Represented by the law firm Brown Rudnick, BlockFi creditors wrote that BlockFi sold about $240 million worth of crypto before filing for bankruptcy in late November 2022. The creditors emphasized that the crypto lender sold the assets “at the nadir,” referring to a massive market slump following the collapse of FTX.
“Liquidating nearly all domestic cryptocurrency in November 2022 was a very poor decision,” the creditors said, arguing that the decision cost more than $100 million in the months since. The creditors also cited “unnecessary and undesired tax consequences,” also noting that the amount of the sale didn’t have any relation to its bankruptcy. The filing reads:
BlockFi customers went on to say that the company spent $22.5 million of customer money to buy a $30 million insurance policy. According to the creditors, that happened soon after BlockFi sold out the digital assets but before filing for bankruptcy.
Related: SEC revises $22M penalty against LBRY, seeks $111K instead
“By selling everything pre-petition, BlockFi gave itself a near limitless budget, essentially immune from bankruptcy’s adversary process, to run its case as long and
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