BlockFi-Three Arrows Capital Settlement Approved

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  • The US Bankruptcy Court has sanctioned a settlement between BlockFi and Three Arrows Capital
  • The terms remain undisclosed, with Judge Kaplan deeming disclosure counterintuitive
  • The dispute involved $270 million in payments made by Three Arrows Capital to BlockFi

The US Bankruptcy Court has officially sanctioned a settlement agreement between BlockFi, the crypto lending firm, and Three Arrows Capital, the collapsed crypto hedge fund. The terms of the settlement remain undisclosed, with Judge Kaplan of the New Jersey Bankruptcy Court remarking that making it public would be counterintuitive. This decision effectively resolves counterclaims between the two parties over $270 million in payments made to BlockFi from Three Arrows Capital.

$270 Million Preferential Payment Battle Ends

The dispute between Three Arrows Capital BlockFi centers around approximately $270 million in “preferential payments” from Three Arrows Capital to BlockFi. These are transactions made just before a bankruptcy filing that may give the recipient an advantage over other creditors. 

The key legal question at the heart of the dispute is determining when Three Arrows Capital became insolvent and how that relates to the timing of the payments made to BlockFi; Three Arrows Capital asserts that the payments made to BlockFi were preferential and occurred just before their insolvency, potentially giving BlockFi an unfair advantage over other creditors in the event of bankruptcy. It argues that the $270 million should be returned to its liquidation estate to ensure equitable distribution among creditors.

In contrast, BlockFi argues that the payments were made in the ordinary course of business and were not preferential and that returning the alleged preferential payments could disrupt its own operations and financial stability. BlockFi was in bankruptcy from November 2022 until October 2023, having been hugely affected by the collapse of FTX.

US Trustee Wanted Details Published

The decision to keep the settlement details under wraps faced opposition from the US Trustee, who on Monday urged the judge to unseal the information, arguing that the debtors lacked sufficient justification to keep it undisclosed. The Trustee’s stance was based on the belief that transparency in bankruptcy proceedings is crucial for ensuring fairness and accountability.

BlockFi, on the other hand, had initially filed a motion to seal the settlement details back in January, citing the sensitive and non-public nature of the information, asserting that its disclosure could potentially harm its future legal battles. BlockFi also emphasized the importance of protecting confidential data to maintain its competitive edge and safeguard its reputation in the industry.

The court ultimately sided with BlockFi’s arguments, ruling to maintain the confidentiality of the settlement details. This decision underscores the court’s recognition of the importance of protecting sensitive information in legal proceedings, particularly in the context of the evolving cryptocurrency landscape.