BlockFi’s $13.2 million class action settlement moves closer to approval

A proposed $13.2 million settlement for BlockFi investors has moved closer to final approval after the last objector withdrew his challenge. This could now pave on a compensation plan for thousands of customers to receive back their funds after the crypto lender collapsed in 2022.

Attorneys for the lead plaintiffs confirmed in a letter filed Wednesday with the US District Judge Claire Cecchi that Yacov Baron had dropped his motion to intervene and his objections to the deal. 

Baron had been the only individual resisting the agreement, which was intended to compensate nearly 89,000 customers who held BlockFi Interest-bearing accounts before the firm’s downfall.

“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 lawyers wrote.

The deal was reached in February, when BlockFi’s founders and several executives agreed to settle securities fraud claims by paying more than $13 million. 

BlockFi settlement opens door for individual investor claims

The settlement is currently limited to interest-bearing account holders but leaves open the possibility of individual claims. 

“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,” explained Navodaya Singh Rajpurohit, a partner at Coinque Consulting.

Most investors are expected to retain their positions in the settlement class, as the agreement represents one of the few concrete avenues for recovering lost funds. 

BlockFi’s implosion left account holders with little to zero access to their crypto holdings at a time when digital asset prices were already falling sharply.

BlockFi’s bankruptcy was one episode in a several instances of crypto businesses collapsing, which swept through the digital asset sector in 2022. The lender, headquartered in New Jersey, had marketed its interest accounts as a reliable way for users to earn yield on their cryptocurrency holdings. 

But when TerraUSD, a so-called algorithmic stablecoin created by Do Kwon’s Terraform Labs, collapsed in May 2022, it triggered a domino effect that undermined the financial foundations of many crypto firms. Do Kwon pled guilty to fraud over the fall of the stablecoin, as covered by Cryptopolitan last week.

BlockFi’s founders, Zac Prince and Flori Marquez, had assured customers that their deposits were safe and comparable to those in regulated bank accounts. In practice, however, the company loaned customer assets to outside firms, including Alameda Research, the trading affiliate of FTX. 

Plaintiffs alleged that BlockFi leaders made “speculative and risky loans to companies with insurmountable liquidity problems,” leaving investors exposed when the market turned.

The complaint also included Gemini Trust Co., founded by Cameron and Tyler Winklevoss, as a defendant due to its ties to BlockFi, but the firm never made an appearance in the case and is not part of the settlement agreement.

Other entities, including Crypto lender Celsius Network froze withdrawals in June 2022 before filing for bankruptcy a month later. Voyager Digital, another high-profile lender, collapsed around the same time, also stranding customers who had deposited billions in digital assets.

The most dramatic downfall came in November 2022 with the collapse of FTX, once one of the world’s largest exchanges. FTX’s implosion sent shockwaves through the industry and revealed the extent of interconnected lending practices between companies like BlockFi, Celsius, and Alameda Research.

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