Creditors seek BlockFi liquidation, accusing CEO of fraud and extortion

Creditors of BlockFi have filed to liquidate the company’s estate, accusing the now-defunct crypto lender, and CEO Zac Prince in particular, of "fraud, dishonesty, incompetence or gross mismanagement” and intentionally delaying bankruptcy resolution. 

According to a document filed in the New Jersey Bankruptcy Court on Tuesday, the creditors claim that BlockFi is using the delay to negotiate legal releases for its senior management — who bear responsibility for loans made to FTX's Alameda Research, CoinDesk first reported. 

Creditors said it was time to “end the extortion tactics,” adding, “It is time for the Debtors’ unsecured creditors to finally come to know what BlockFi truly was, who Zac Prince truly is, how much he personally profited from the company, and what he and certain of his colleagues were doing when no one was watching.”

The filing said mediation had failed, and negotiations were at a standstill. With no revenue coming into the company and compounding losses, creditors argued the case should proceed as a liquidation. Creditors criticized BlockFi's administrative costs, including salaries for over 100 individuals who “have had little to do but work on their golf game,” arguing “the Debtors are intentionally burning on average more than $16 million per month, merely to augment defensive positions for historical management.”

Updated bankruptcy plan

In a separate filing today, BlockFi updated its plan under Chapter 11 of the bankruptcy code. The revised disclosure statement said that holders of BlockFi interest accounts, owed approximately $1 billion in total, could recover between 39% and 100% of their assets under the bankruptcy plan, compared to 36% and 60% via liquidation.

BlockFi did not immediately respond to a request for comment.