- BlockFills and its affiliated entities have filed for Chapter 11 bankruptcy in Delaware after suspending client withdrawals earlier this year.
- A creditor lawsuit alleges the firm commingled client and company funds, leading to a $77 million shortfall and misappropriation of assets.
- The case raises critical questions about the treatment of client crypto assets during bankruptcy proceedings, similar to issues seen in the FTX and Celsius collapses.
The operator of crypto trading and liquidity provider BlockFills, Reliz Ltd., has filed for Chapter 11 bankruptcy in Delaware alongside three affiliated entities, the company confirmed Sunday. This move follows the firm’s suspension of client withdrawals and an asset freeze ordered by a federal judge in New York earlier this month.
The bankruptcy filing aims to allow the business to pursue restructuring while working with clients and creditors. However, this follows a February lawsuit from creditor Dominion Capital.
Dominion’s lawsuit alleges BlockFills misappropriated and commingled customer crypto assets while concealing losses. The firm reportedly admitted to clients that customer assets were pooled with company funds on a single balance sheet.
This practice allegedly created a balance sheet shortfall of about $77 million. Dominion further claimed client assets were used to cover company expenses, including crypto mining operations and equipment purchases.
Consequently, a federal judge issued a temporary restraining order freezing 70.5 BTC, then valued at roughly $4.8 million. The order also directed the firm to account for and segregate customer funds.
Legal experts note the case is “structurally similar to what regulators alleged in the FTX collapse, but on a much smaller scale,” according to attorney Andrew Rossow. It highlights the risks when institutional crypto venues lack mandatory customer asset segregation rules.
Rossow explained that BlockFills occupied a “middle zone—institutional-facing, custody-adjacent, but not a registered broker-dealer.” The key question is when management knew client funds were impaired.
Furthermore, the legal treatment of client crypto in bankruptcy remains unsettled. Courts may distinguish between customer property and the bankruptcy estate, as seen in the Celsius case.
This distinction could leave some BlockFills clients treated as unsecured creditors rather than asset owners with priority claims. Counterparties with open trades may also face delays due to the bankruptcy’s automatic stay.
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