A $13.2 million class action settlement for BlockFi investors moved closer to approval after the sole remaining objector abandoned his challenge. That could remove the final hurdle for compensation to thousands who lost access to funds when the crypto lender imploded in 2022.
Attorneys for lead plaintiffs filed a letter on Wednesday with U.S. District Judge Claire Cecchi, confirming that Yacov Baron had withdrawn both his motion to intervene and his objections to the proposed deal.
“Rapid resolution of the Preliminary Approval Motion will allow Plaintiffs to commence issuing notice to class members and will reduce the potential for complications to arise in connection with the closing of the bankruptcy of BlockFi, Inc.,” the letter said.
The proposed settlement covers all U.S. holders of BlockFi interest accounts between March 2019 and November 2022.
With Baron’s opposition removed, roughly 89,000 holders of BlockFi Interest-bearing Accounts could soon receive compensation for investments that were frozen when the New Jersey-based lender imploded.
“Those who have opted out of class settlements can pursue an individual claim and seek compensation for specific harm, rather than being bound by the terms of the class settlement,” Navodaya Singh Rajpurohit, legal partner at Coinque Consulting, told Decrypt.
“Usually when there is a criminal charge against the officer of a company under bankruptcy, it is treated as a separate case,” he said, citing how Celsius founder Alex Mashinsky was sentenced to 12 years in prison for fraud charges despite his company’s bankruptcy.
BlockFi’s downfall in 2022 was part of the wider chain reaction that began with the implosion of Do Kwon’s TerraUSD stablecoin in May that year, wiping out billions and triggering a lender crisis.
By November, the contagion had spread to Sam Bankman-Fried’s FTX empire, whose collapse exposed BlockFi’s $680 million exposure to FTX and its sister company, Alameda Research.
Just one day after FTX filed for bankruptcy, BlockFi followed suit, citing a severe liquidity crunch.
Court documents later revealed CEO Zac Prince had known about FTX’s questionable balance sheet as early as August 2021, but continued doing business with the trading firm.
Kwon, who pleaded guilty to conspiracy and wire fraud charges in August, faces up to 12 years in prison, and has agreed to pay $19 million as part of the plea deal.
While over 10,000 investors opted out of bankruptcy protections, the deal would distribute funds equally among all class members, a provision Baron had criticized as “grossly unfair” before withdrawing his objections without explanation.
“Victims who have lost money through investment scams or crypto platforms should consider taking legal action to seek recovery of their funds,” Andy Lau, Partner at David Cameron Law Office, told Decrypt.
“With advancements in blockchain tracing technology, misappropriated BlockFi funds can now be traced and identified, significantly enhancing the likelihood of recovery for these specific cases,” he said.
