Crypto

BlockFi Can Prioritize Repaying Investors Over $30 Million SEC Penalty

Byinvestment-admin February 17, 2022August 2, 2023

Bankrupt crypto lender BlockFi can prioritize repaying investors over a $30 million penalty imposed by the U.S. Securities and Exchange Commission (SEC) after the regulator agreed to forgo the payment until investor funds are returned, court filings show.

Bankrupt BlockFi will be allowed to defer $30 million of a previous penalty payment to the SEC so it can prioritize repaying creditors.BlockFi had previously agreed to pay a $50 million penalty in February 2022.

BlockFi Penalty Payment Reprioritized for Investors

The U.S. SEC has agreed to waive a $30 million fine owed by BlockFi until investors are repaid. This decision comes as part of a settlement reached in February 2022, in which BlockFi agreed to pay a $50 million penalty for failing to register its crypto lending product with the SEC

The SEC, acknowledging the importance of maximizing payments to investors and avoiding further delays, has agreed to categorize its claims as “general unsecured claims” in BlockFi’s Chapter 11 bankruptcy proceedings.

1. What’s Next For BlockFi Investors?

During the course of a corporate bankruptcy, investors are usually the last in line behind different types of creditors to get paid.The agreement with the SEC may prove to be beneficial for investors who used BlockFi, though it will likely not be enough to settle all investor obligations for the lender.

BlockFi plans to open customer withdrawals later this summer, as indicated in recent emails sent to customers, Blockworks reported.BlockFi had suspended withdrawals following the collapse of FTX.In early May, a judge ruled that approximately $300 million held in custodial accounts could be returned to customers. However, the $375 million held in interest-bearing accounts will not be returned.

BlockFi had roughly $1 billion exposure to FTX and its sister trading firm Alameda.If it is able to recover some of those funds, that could be another way for the company to give back what it owes its customers and creditors.