‘End the Extortion:’ BlockFi Creditors File to Liquidate Estate

Creditors accuse CEO Zac Prince of defrauding customers and the company of “mischief” in delaying a wind-up.

AccessTimeIconJun 28, 2023 at 7:53 a.m. UTC
Updated Jun 28, 2023 at 8:30 a.m. UTC

Creditors of defunct crypto lender BlockFi have filed to liquidate the company, accusing management, including CEO Zac Prince, of “fraud,” “extortion” and “mischief” in delaying resolution of bankruptcy proceedings.

The company is holding the case up so it can negotiate legal releases for its senior management, who are culpable for loans made to FTX’s Alameda Research, a committee representing BlockFi’s unsecured creditors said in a document filed in the New Jersey Bankruptcy Court late Tuesday evening.

“It is time to end all of this,” the creditors’ filing said, adding that, unlike other cases of alleged crypto wrongdoing, such as Sam Bankman-Fried’s FTX, “BlockFi customers do not yet know their story, and this is facilitating case mischief … It is time for the court to order an end to the burn and, thereby, end the extortion tactics.”

The creditors refer to an investigative report into activities at the company, previously filed under seal, which they say “reveals, in great detail, that BlockFi (Mr. Prince in particular) perpetrated a fraud on customers.”

“The mediation is over; negotiations are over,” the filing said, arguing that BlockFi was taking unfair advantage of its legal monopoly on proposing a way out of bankruptcy. “This case is a liquidation. There is no revenue.”

With administrative costs of $16 million per month, “the Debtors continue paying, among other things, the salaries to more than 100 individuals – many of whom, to the best of our knowledge, have had little to do but work on their golf game,” the filing said.

In parallel with the creditors’ filing, BlockFi filed an updated plan under Chapter 11 of the bankruptcy code. An amended disclosure statement suggests that holders of BlockFi interest accounts, collectively owed around $1 billion, can expect to recover between 39% and 100% of their assets under the bankruptcy plan, as against 36%-60% if assets are merely liquidated.

Counsel for BlockFi did not immediately respond to CoinDesk’s request for comment.

Edited by Sheldon Reback.


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Jack Schickler

Jack Schickler was a CoinDesk reporter focused on crypto regulations, based in Brussels, Belgium. He doesn’t own any crypto.