It was a ruling that will come across as welcomed news to BlockFi customers, who have $295 million in funds set to be refunded. A judge in New Jersey has ruled against repaying a further $375 million held in accounts known as BIA, however. All digital assets held in custodial omnibus wallets were ruled as belonging to clients rather than the bankrupt crypto lender.

This dispute arose after BlockFi frozen funds last year, when FTX had collapsed. Bankruptcy Judge Michael Kaplan ruled that customers who were transferring BIA holdings between November 10th, when BlockFi paused transfers, and November 18th, when it made changes to its app, were to be excluded from any repayment. Although the clients received email confirmation that funds had been transferred, the user interface had been “deliberately divorced” from the underlying transactions.

When BlockFi filed for Chapter 11 bankruptcy on November 28th, they had already sought a bailout from FTX back in June. The law firm representing BlockFi argued that no sale of assets had been completed, and that it was not fair to ignore the terms of service that promised transactions to be instantly executed.

The customer assets to be returned must still pass through a process of clawback and avoidance by the estate. However, this recent ruling should be relief to BlockFi customers after a tumultuous year in the crypto ecosystem.

Cryptocurrency lending firm BlockFi has been facing bankruptcy since late last year amidst the collapse of another crypto firm, FTX. On Thursday May 11th, a New Jersey judge ruled that the funds held in BlockFi's custodial wallet should be returned to clients as customer property and not property of the bankrupt estate. BlockFi customer’s will be able to recover nearly $300 million from their accounts.

However, the judge ruled against repaying the additional $375 million that customers had attempted to withdraw from the company’s interest-bearing accounts—known as BIA—after the funds had been frozen. The case centered around funds that were transferred between the 10th and 18th of November, when changes in the app were made by BlockFi and customer's email confirming the transfers were received. The law firm representing BlockFi argued that these transfers had not been completed and that to deem them so would effectively be ignoring the promise of instantaneous execution of service.

The reimbursement of customer funds is still subject to a process of avoidance and clawback by the bankrupt estate. Regardless, this ruling brings much welcomed relief to BlockFi customers and a light of hope to those affected by the rash of bankruptcies in the crypto industry.



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