Key Takeaways
- Judge Michael Kaplan allowed FTX and BlockFi to engage in settlement talks.
- BlockFi's financial struggles are deeply tied to its involvement with FTX.
- BlockFi's ongoing efforts for financial recovery include repayment to Wallet customers and a court-approved restructuring plan.
United States Bankruptcy Judge Michael Kaplan has become a key figure in the ongoing bankruptcy saga of two major crypto companies, FTX and BlockFi. The judge's decision to allow these firms to proceed with their claims settlement negotiations marks a crucial step in their bankruptcy proceedings.
On November 13th, Judge Kaplan lifted an automatic hold, enabling FTX debtors to actively engage in the legal process concerning BlockFi's claims within the FTX bankruptcy case.
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The development follows the November 2022 bankruptcy filings of both FTX and BlockFi.
BlockFi's financial woes are intricately linked to FTX, with an estimated $355 million in frozen assets on the FTX platform and an outstanding $671 million debt owed by Alameda Research.
Despite these challenges, the court ruled that FTX debtors would not be entitled to any "affirmative distribution from the BlockFi Debtors." The court has also urged both parties to enter mediation with the US Bankruptcy Court for the District of Delaware as soon as possible, with the process set to commence no later than December 24th, 2023.
This ruling follows BlockFi CEO Zac Prince's testimony against former FTX CEO Sam Bankman-Fried, who was found guilty on all fraud-related charges.
On October 13th, Prince presented evidence suggesting that BlockFi's bankruptcy was a direct consequence of FTX's collapse. The company reportedly lost over a billion dollars due to the failure of FTX and Alameda.
In an effort to recover, BlockFi was permitted by the court in August to begin repaying its US-based Wallet customers, although withdrawals were initially prohibited.
By September, BlockFi's creditors had endorsed a bankruptcy restructuring plan, which received court approval on September 26th. Following this, BlockFi announced on October 24th that it would start repaying some of its creditors.
This case, with Judge Kaplan at its center, is a significant turn in the unfolding narrative of the cryptocurrency industry and its challenges, potentially setting new standards for handling similar cases in the future.
