Is BlockFi’s $35 Million DOJ Lawsuit Dismissal Hiding a Bigger Crypto Scandal?

BlockFi and the U.S. Department of Justice have quietly agreed to dismiss a $35 million lawsuit over disputed crypto assets. The move, approved by Judge Michael B. Kaplan, ends a contentious chapter in BlockFi’s bankruptcy saga.

The lawsuit, filed in May 2023, centered on the DOJ’s attempt to seize funds from BlockFi accounts linked to two Estonian nationals accused of criminal fraud. The case was dismissed with prejudice, meaning it cannot be reopened, and each side will bear its own legal costs.

Could the settlement between BlockFi and the DOJ reveal deeper industry problems?

Some industry watchers are questioning whether the settlement signals deeper issues within the crypto sector. BlockFi’s bankruptcy, declared in November 2022 after the FTX collapse, exposed a tangled web of financial and legal risks for investors and creditors.

The DOJ’s original claim was based on warrants to seize assets from accounts tied to criminal activity, unrelated to BlockFi’s own bankruptcy. The dispute highlighted the complex overlap between federal criminal investigations and bankruptcy proceedings in the crypto world.

Did you know?
BlockFi’s bankruptcy is one of the largest in crypto history, with over $10 billion owed to more than 100,000 creditors, following the collapse of FTX and major industry turmoil.

Is the dismissal of the $35 million lawsuit just the tip of the iceberg?

Legal experts note that dismissing the case with prejudice means BlockFi’s estate can now proceed without further claims on these specific assets. However, BlockFi still owes around $10 billion to more than 100,000 creditors, and the company’s financial troubles are far from over.

The case also comes amid a broader shift in U.S. regulatory and enforcement priorities. In 2025, the DOJ signaled it would scale back aggressive prosecution of digital asset companies, focusing instead on clear cases of fraud and theft.

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BlockFi’s bankruptcy administrator and DOJ settle $35 million lawsuit

BlockFi’s wind-down is being overseen by Mohsin Meghji, while the DOJ was represented by senior trial counsel Seth B. Shapiro. Both parties agreed to bear their own legal costs, a sign that neither side wanted to prolong the dispute.

The settlement brings clarity to the jurisdictional challenges that arise when federal criminal cases intersect with bankruptcy law. Judge Kaplan’s approval allows BlockFi to continue its bankruptcy process without the shadow of the DOJ’s asset claim.

Jurisdictional disputes complicate crypto asset recoveries

The BlockFi-DOJ dispute is just one example of the challenges facing creditors trying to recover funds from failed crypto firms. The bankruptcy court’s limited jurisdiction over assets tied to criminal investigations has created confusion and delays for many victims.

Meanwhile, BlockFi’s customers faced an April 28, 2024, deadline to withdraw remaining crypto holdings. The company’s bankruptcy plan was approved in September 2023, but many creditors are still waiting for full repayment.

The dismissal of the $35 million lawsuit may resolve one legal battle, but it leaves open questions about transparency, asset recovery, and the future of crypto regulation. As the industry continues to evolve, investors and regulators alike will be watching for signs of deeper problems lurking beneath the surface.