BlockFi and 3AC Reach a Confidential Settlement After Months of Legal Disputes

The crypto lender BlockFi and the defunct crypto hedge fund Three Arrows Capital (3AC) have finally settled their claims and disputes after months of legal battles. The settlement was approved by a US judge, but the details remain undisclosed.

The Background of the Case

BlockFi and 3AC were both involved in the collapse of FTX, a crypto exchange that filed for bankruptcy in November 2022. FTX was accused of fraud, market manipulation, and misappropriation of funds by several creditors, including BlockFi and 3AC.

BlockFi claimed that it had lent $129 million to 3AC, which used the funds to trade on FTX. However, 3AC disputed this amount and argued that BlockFi owed them $280 million, which included the profits they made on FTX. 3AC also accused BlockFi of breaching their lending agreement and failing to return their collateral.

3AC filed for bankruptcy in June 2022, shortly after FTX’s downfall. BlockFi filed for bankruptcy in November 2022, following a series of lawsuits and regulatory actions against it. BlockFi owed over $10 billion to more than 100,000 creditors, including $1 billion to its three largest creditors and $220 million to 3AC.

The Approval of the Settlement

On February 6th, 2024, the New Jersey Bankruptcy Court Judge Michael Kaplan approved a settlement that resolves the claims and disputes between BlockFi and 3AC. The judge ordered that the details of the settlement remain sealed, citing the need to protect settlement strategies and respect the foreign bankruptcy proceeding of 3AC.

The judge also rejected the objection raised by the U.S. Trustee, which argued for the disclosure of the terms. BlockFi had filed a motion to seal certain information, citing its commercial sensitivity and potential impact on the litigation involving FTX.

The approval of the settlement allows BlockFi to proceed with the distribution of assets from the lending estate to its creditors, a crucial step that prompted the company to seek swift approval. Judge Kaplan had previously approved BlockFi’s amended Chapter 11 and customer repayment plan in September 2023, when the company received clearance for liquidation.

The Implications of the Settlement

The settlement between BlockFi and 3AC marks the end of one of the most complex and contentious cases in the crypto industry. The case involved multiple jurisdictions, parties, and issues, and revealed the risks and challenges of crypto lending and trading.

The settlement also raises questions about the transparency and accountability of the crypto sector, as the details of the settlement remain unknown to the public and the creditors. The settlement may also affect the ongoing litigation against FTX, which is facing claims from several creditors, including BlockFi and 3AC.

The settlement may also have implications for the future of crypto regulation, as the case highlighted the need for more clarity and oversight in the crypto space. The case also exposed the vulnerabilities and loopholes of the current legal and financial system, which may not be able to cope with the rapid and dynamic changes in the crypto world.