SEC Wants BlockFi Investors Paid Before $30 Million Fine

The US Securities and Exchange Commission agreed to forgo a $30 million fine until after the bankrupt cryptocurrency lender repays its investors, according to a Thursday court filing.

In the filing, the SEC defined its claim as “general unsecured claims” and allowed a temporary relief to “maximize the amount that may be distributed to investors and avoid delay in such distribution,” according to the order filed by Alan S. Maza, counsel for the SEC, to the US Bankruptcy Court for the District of New Jersey.

The amount is the remaining balance from the $50 million penalty that BlockFi Lending LLC owed to SEC, failing to register its offers and sales of its retail crypto lending product. BlockFi agreed to pay $50 million in fines to 32 states to settle charges in February, according to the SEC’s news release.

The company owes more than 100,000 creditors with assets and liabilities ranging from $1 billion to $10 billion, according to the November bankruptcy filing.

The SEC, due to the $30 million settlement claim, is the fourth biggest creditor for BlockFi. Other creditors include Ankura Trust Co. with $729 million and West Realm Shires Inc. with $275 million, according to a November filing.

Last year, BlockFi filed for Chapter 11 bankruptcy amid a plunge in digital asset prices and rapid downfall of crypto-exchange FTX Trading Ltd. The company cited a $1 billion hole against FTX and its sister trading firm Alameda Research was the “largest driver” of asset recoveries.

This case is In re BlockFi Inc, Bankr. D.N.J., No. 22-19361-MBK, order 6/22/23.