US Court Approves Sealed Settlement in BlockFi vs. 3AC Dispute

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A US judge has approved a confidential settlement between BlockFi and Three Arrows Capital aimed at resolving financial disputes without further litigation. Details remain under wraps to protect sensitive information amid BlockFi’s bankruptcy proceedings and its implications for the broader crypto market.

A US judge recently approved a settlement between cryptocurrency lending platform BlockFi and bankrupt hedge fund Three Arrows Capital (3AC), aiming to resolve their disputes without further legal confrontations. The settlement, sanctioned during a Feb. 6 hearing by Judge Michael Kaplan in New Jersey Bankruptcy Court, remains secret because details of the settlement have been ordered sealed. This decision was made despite BlockFi’s offer to seal certain information, arguing that the disclosure could potentially affect ongoing litigation with the bankrupt crypto exchange FTX. The sealed nature of the agreement is intended to protect sensitive commercial information and respect foreign bankruptcy proceedings involving 3AC.

The crux of the dispute was the financial claims each company made against the other; BlockFi claims 3AC owes it $129 million, while 3AC counters by claiming BlockFi owes it $280 million. Judge Kaplan’s decision to keep the details of the settlement private was defended as being in the best interest of all parties involved, including BlockFi’s creditors. By sealing the settlement, the court aims to protect the strategic considerations of the settlement and preserve the integrity of 3AC’s foreign bankruptcy proceedings.

The approval of this agreement is a significant step for BlockFi as it allows the company to proceed with the distribution of assets from its loan pool to its lenders. This is a crucial phase in BlockFi’s ongoing bankruptcy proceedings, which saw the company file for bankruptcy at the end of November 2022 following the fall of FTX. BlockFi’s financial liabilities at the time of its bankruptcy filing were substantial, with estimates suggesting the company owed up to $10 billion to over 100,000 creditors, including significant amounts to its three largest creditors and 3AC.

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The June 2022 collapse of Three Arrows Capital and the ensuing legal and financial fallout underscore the volatile nature of the cryptocurrency market and the complex web of interdependencies between its players. This settlement, though sealed, marks a key settlement in one of the many legal battles stemming from the cascading failures of prominent entities in the cryptocurrency space.

This situation highlights the broader challenges and risks facing the cryptocurrency industry, including regulatory scrutiny, market volatility and the complex legal battles that can arise from financial disputes. As the industry continues to evolve, the outcomes of such court proceedings will likely shape the regulatory and operational landscape for the crypto business moving forward.​​​​

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