BlockFi Sues State Commission for Not Accepting Its Surrendered License

Bankrupt cryptocurrency lender BlockFi has sued Connecticut Banking Commissioner Jorge Perez within the U.S. Chapter Court docket of New Jersey.

This comes after the state regulator has repeatedly refused to simply accept BlockFi’s supply to give up its Connecticut cash transmitter license, which it has had since April 2020. As an alternative, the regulator has been insisting on an administrative continuing—which implies the corporate would wish to signify itself in yet one more courtroom continuing.

The corporate was considered one of many who felt the sting of the FTX collapse late final 12 months. Its creditor committee revealed a $1.2 billion publicity to the trade and its enterprise capital arm, Alameda Analysis. BlockFi additionally introduced $227 million in deposits, which weren’t FDIC-insured, had been being held at now-defunct Silicon Valley Financial institution.

After BlockFi filed for Chapter 11 chapter safety in November, it was notified it might have to give up its Connecticut cash transmitter license. It tried to take action in December. The regulator by no means responded.

As an alternative, in February 2023, it despatched the corporate a discover that its Connecticut cash transmitter license was being revoked and it was being ordered to stop and desist doing enterprise with the state’s residents. By no means thoughts the truth that by the point the Connecticut Division of Banking issued its discover, the difficulty was moot. BlockFi halted all operations when it filed for chapter in November.

As soon as it obtained the notices, the crypto trade tried to keep away from being pulled into one other courtroom continuing by once more providing to give up its cash transmitter license. Since March, considered one of BlockFi’s legal professionals has had a number of calls with a Connecticut banking division workers legal professional and been instructed the corporate would wish to pay a $1 million effective if it needed to keep away from a courtroom continuing.

That’s raised just a few considerations, in keeping with BlockFi.

Based on its lawsuit in opposition to the Connecticut banking commissioner, BlockFi now must retain Connecticut council skilled in lawsuits coping with the banking division. The corporate has acknowledged it will come at “vital expense to the property” along with any time and different sources the administrators would require to deal with the courtroom case.

BlockFi presently owes $1 billion to its three largest collectors, to not point out the hundreds of smaller, retail buyers ready to withdraw their funds. It was granted an approval earlier this 12 months to promote its remaining property in an effort to start out making shoppers entire once more.

Why then would the federal government insist on dragging the crypto trade right into a expensive and prolonged courtroom case over a license it has mentioned it gained’t battle to maintain?

“The Division’s self-help actions to revoke the License and assess financial penalties are in pursuit of its pecuniary curiosity and don’t search to guard public well being, security, or welfare,” BlockFi mentioned in its grievance.

The lawsuit mentioned the cryptocurrency firm has two targets: First, it seeks to pause the courtroom proceedings, setting a date to create a restructuring plan; and second, show the division violated Part 525 by revoking BlockFi’s license and pursuing civil penalties.

A summons has already been despatched to Perez and BlockFi will argue in favor of its movement to keep away from the courtroom continuing on July 6. However for now, the executive continuing that the bankrupt crypto trade has been attempting to keep away from continues to be scheduled to start on July 20.