Court Approves Settlement in BlockFi and 3AC Case

Key Takeaways

• Court approves confidential settlement between BlockFi and bankrupt 3AC, details remain hidden despite objections.
• The agreement clears BlockFi’s path to distribute funds to creditors, a crucial step in bankruptcy proceedings.
• 3AC co-founders’ crypto claims platform shuts down, highlighting ongoing industry challenges.

A United States judge has given the green light  to a confidential settlement between cryptocurrency lender BlockFi and the now-bankrupt hedge fund Three Arrows Capital (3AC), aimed at putting an end to their legal disputes.

During a hearing  on February 6, Judge Michael Kaplan of the New Jersey Bankruptcy Court sanctioned the agreement, which seeks to halt ongoing litigation.

Confidential Settlement Between BlockFi and 3AC Approved

BlockFi had alleged that 3AC was in debt to them for $129 million, whereas 3AC countered with claims that BlockFi owed them $280 million.

Judge Kaplan opted not to disclose the details of the settlement agreement, reasoning that making it public would be “counter-intuitive.” This decision came despite objections from the U.S. Trustee, who argued  that the settlement terms should be open to public scrutiny. The Trustee contended that the debtors had failed to provide a sufficient rationale for keeping the settlement sealed.

BlockFi defended its request to keep certain details of the settlement confidential by arguing that the terms contained commercially sensitive information. The company expressed concerns  that disclosing this information could potentially influence ongoing litigation against the bankrupt cryptocurrency exchange FTX.

The court approved BlockFi’s motion to keep the settlement details under wraps, highlighting the importance of safeguarding settlement strategies and honoring comity in relation to Three Arrows Capital’s (3AC’s) bankruptcy proceedings in foreign jurisdictions.

Paving the Way for BlockFi to Begin Creditor Repayments

The court’s sanctioning of the settlement with Three Arrows Capital enables BlockFi to proceed with distributing funds from its lending estate to creditors, marking a significant step forward and underscoring the urgency behind the company’s request for expedited approval.

In September 2023, Judge Kaplan green-lighted BlockFi’s revised Chapter 11 bankruptcy plan  along with its strategy for customer repayments, setting the stage for the company’s orderly liquidation.

At the time of the bankruptcy proceedings, it was estimated that BlockFi had liabilities  amounting to up to $10 billion, owed to more than 100,000 creditors. This substantial debt included $1 billion owed to its three largest creditors and $220 million specifically attributed to Three Arrows Capital (3AC).

Three Arrows Capital faced collapse  in June 2022, leading to a ripple effect in the cryptocurrency industry. BlockFi declared bankruptcy towards the end of November 2022, a situation further exacerbated by the downfall of FTX.

In a related development earlier in February, crypto platform OPNX, initiated by 3AC co-founders Su Zhu and Kyle Davies, announced its decision to halt all operations and permanently close by February 14.

3AC Founders Pledge Future Earnings to Creditors in a Bid for Redemption

In a gesture aimed at addressing the fallout from Three Arrows Capital’s (3AC) collapse, in July last year, Davies announced plans for him and the other founder to donate their “future earnings” to the fund’s creditors who suffered financial losses.

Davies described  this commitment as part of a “shadow recovery process,” a mechanism operating alongside but separate from the formal liquidation efforts designed to liquidate the fund’s assets and reimburse creditors. He noted that some early creditors had already been fully repaid.

Davies highlighted the importance of “karma” in their decision to make additional donations, viewing these contributions as a way to supplement the repayments creditors might receive through official legal proceedings. This move reflects an attempt by the 3AC founders to make amends beyond the structured legal resolution process.

About the Author

Teuta Franjkovic

Teuta is a seasoned writer and editor with more than 15 years of experience. She has expertise in covering macroeconomics and technology as well as the cryptocurrency and blockchain industries. She has worked for several publications as a journalist and editor, including Forbes, Bloomberg, CoinTelegraph, Coin Rivet, CoinSpeaker, VRWorld and Arcane Bear. Teuta began her professional career in 2005, working as a lifestyle writer at Cosmopolitan in Croatia. From there, she branched out to several other publications, covering mainly business and the economy. She then turned her attention to the world of cryptocurrency and blockchain, believing that crypto is among the most important inventions in the history of humanity. Her involvement in fintech began in 2014 and she has since lent her expertise in writing, editing and gathering information about the world of crypto, blockchain, NFTs and Web3. An all-round news hound, mentor, editor, and writer, Teuta enjoys teamwork and good communication. She holds a WSET2 diploma and has a thing for chablis, punkrock music and shoes. She also holds a double MA in Political science and Entrepreneurship.

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