BlockFi committee calls for ‘end to the burn’ in scathing cross motion

By Sarah Lizee

Olympia, Wash., June 28 – BlockFi Inc.’s official committee of unsecured creditors has filed a cross motion that seeks to terminate the debtors’ exclusivity periods, appoint a Chapter 11 trustee, or convert the cases to Chapter 7, according to documents filed Tuesday with the U.S. Bankruptcy Court for the District of New Jersey.

As previously reported, the company is currently seeking a second extension of its exclusive plan filing and solicitation periods.

“This ‘reorganization’ case is over,” the committee said in the cross motion. “The business has ceased all operations and is now completely defunct.”

The group said extended efforts to sell the platform in an operating or non-operating condition didn’t generate any actionable offers, leaving the estate with cash, cryptocurrency, a modest portfolio of loans, claims and causes of action.

The group said the court has already given all the guidance necessary to allocate value among the creditors, and while the case should be “a snap to wrap up” at “very little cost,” that isn’t happening.

“The administrative burn is a staggering $16 million per month on average,” the committee said.

“The debtors continue paying, among other things, the salaries to more than 100 individuals – many of whom, to the best of our knowledge, have had little to do but work on their golf game.”

The committee said mediation between the parties has failed and negotiations are over, leading to litigation instead of an efficient conclusion.

“How do we find ourselves here? Why do the debtors, knowing that there is nothing left to do, refuse to ‘give up the ghost,’ refuse to cut the waste, and threaten to magnify and compound waste via their exclusivity motion? What is it they want so badly?” the committee said.

“The answer is crystal clear: they want plan releases for the insiders.”

The committee conducted an internal investigation and memorialized its conclusion in an investigative report. In that report, the committee said it believes that BlockFi management bears legal culpability for loans made to FTX affiliate, Alameda Research.

However, the committee said the customer base knows little more than this because the report and related documents are filed under seal or in redacted form.

“The official committee does not think it has discretion to accede to the releases and bury what it – but not the creditors – knows,” the group said.

The committee said it’s time for the debtors’ unsecured creditors to “finally come to know what BlockFi truly was, who [chief executive officer] Zac Prince truly is, how much he personally profited from the company, and what he and certain of his colleagues were doing, in juxtaposition to what they promised customers, when no one was watching.”

“It is time for the court to order an end to the burn and, thereby, end the extortion tactics,” the group said.

Based in Jersey City, N.J., BlockFi is a crypto financial services company. The company filed bankruptcy on Nov. 28, 2022 under Chapter 11 case number 22-19361.

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