Key takeaways:
- The SEC will delay collecting the $30.2 million fine that is due from bankrupt crypto lender BlockFi.
- Until all BlockFi consumers have received their full refunds, the SEC will waive its claim.
According to a court filing on June 22, the U.S. Securities and Exchange Commission (SEC) will delay collecting the $30.2 million fine that is due from the now-defunct crypto lender BlockFi.
In an agreement with BlockFi, the SEC accepted that investor restitution should take precedence over the payment of fines, and this decision is a result of that acknowledgment.
For failing to register its lending product, BlockFi had agreed to pay a $50 million penalty to the SEC in February 2022. At the time of the settlement, the lender also consented to pay an additional $50 million in fines as part of the resolution of similar allegations in 32 states.
In contrast, BlockFi declared bankruptcy in November 2022, not long after the collapse of FTX and its sibling company, Alameda Research. Of the $50 million the defunct platform had promised to pay the SEC, $30.2 million was still outstanding at the time of bankruptcy.
It has been noted by the SEC in its court document that its penalty claim against BlockFi falls under the category of “general unsecured claims.” As a result, the agency is entitled to participate in the collection of debt with other unsecured creditors concurrently in order to enforce their rights. However, the SEC will waive its claim until all BlockFi customers have received their full refund in order to maximize the amount that may be disbursed to investors and prevent delays in such distribution.
As of March, BlockFi had the authorization to reimburse more than $100,000 to some Californian subscribers. A New Jersey bankruptcy judge ruled in May that $297 million in funds held in custodial wallets on the BlockFi network could be returned to clients.
BlockFi has stated that $1.2 billion in claims against failed cryptocurrency company FTX and its sibling trading firm Alameda will be the “largest driver” of fund recoveries for consumers and creditors, despite the fact that the bankrupt estate has submitted a reorganization plan to the court set for a hearing in July.
