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Bankruptcy Clawbacks, CBDCs, and Operation Choke Point

Updated: Mar 7

The BlockFi bankruptcy case is proceeding slowly.

Examiner. There hasn’t been a request for an examiner yet. Bankruptcy examiners are brought in to investigate allegations of criminal conduct like fraud but so far there isn’t evidence that BlockFi acted criminally.

UCC. In BlockFi, everything is left up to the UCC Official Committee of Unsecured Creditors. This group owes a fiduciary duty to all unsecured creditors and is required to place the collective interests of all creditors over their own personal financial interests in the restructuring process. This UCC group is the one blocking the non-interest-bearing wallet holders from getting their money back and is proposing clawbacks of anything transferred into the non-interest-bearing wallets in the 90 days before the bankruptcy. Judge Michael Kaplan has agreed to pause on any decisions until the creditors can work out their differences. It escalated to where BlockFi debtors are accusing the creditors of being “divorced from reality,” while the creditors are accusing BlockFi of throwing a “temper tantrum.” The UCC says that due to an incomplete and complicated factual record, the extensive legal analysis is necessary before deciding which transfers to recognize and how to distribute funds to the relevant parties.

Robinhood Shares. You may remember right around the time of the bankruptcy, BlockFi’s CEO, Zac Prince, filed a lawsuit against SBF to get custody over the 55 million Robinhood shares that SBF pledged to him during the SEC settlement loan deal. Those shares are held in an Antigua shell company called Emergent Fidelity, which does no other business other than holding those shares, and now FTX filed for Chapter 11 in the US on Feb 3, to prevent anyone from accessing the Robinhood shares in question, which are worth around $600m. BlockFi has said Emergent Fidelity liquidators are acting in bad faith and making the situation more complex by filing Ch. 11 in the US, in its filing, BlockFi said, “Neither law nor equity require the doing of a futile act, but this bankruptcy case asks the court to do just that - to reorganize an empty shell.” BlockFi said Emergent Fidelity has no employees, no income, and no business, so the bankruptcy filing is solely to advance the interest of the Antiguan liquidators who have already earned over $1.7 million in fees. The DOJ seized these Robinhood shares in January as it investigates SBF’s and Gary Wang’s fraud charges. Gary owns 10% of the Company, while SBF owns 90%. The Antigua liquidator said she is working diligently to protect Emergent Fidelity’s creditors, even if there are competing claims as to who those creditors are.

Financial Report. While a lot of the information is still being redacted, its been estimated the BlockFi owes up to $10 billion to more than 100,000 customers, and the top three creditors are owed $1.3 billion alone. Meanwhile, just today the Judge agreed that BlockFi could pay out Atlas Technology Group its full satisfaction of obligations.

Summary. Whatever BlockFi executive decided to sell their customers’ Bitcoin on Nov 10th at $16K should be ashamed. The cardinal rule in crypto bankruptcy is to HODL which worked out well for Mt. Gox creditors.


The UCC in Celsius is trying to enforce clawbacks from the retail users who withdrew funds within 90 days before the bankruptcy. This obviously helps the people who didn’t get off the platform, but imagine the feeling for the people who did get off, spent the money on things like taxes, tuition, medical bills, rent, etc., and now the Celsius UCC are trying to say each of those people need to return their funds to this god-awful exchange. While Mashinsky and his wife are sitting pretty with over 70 million that they withdrew that hasn’t been clawed back yet.

People are on the verge of suicide over this. They withdrew money, skirted losing their life savings, and now UCC wants to come to take that money. Celsius is trying to buy the votes to push this clawback through. Anyone with less than $5K on the platform is being offered a full refund of their assets so they won’t be able to vote on any future decisions, it’s called a convenience class, which accounts for 85% of the creditors.

There are several different kinds of clawbacks that the UCC is looking into, including

○ insider clawbacks (Mashinksy, his wife, Nuke Goldstein)

○ Institutional clawbacks (loans to other crypto platforms/banks)

○ Influencer clawbacks (people who made money by promoting Celsius)

○ Retail clawbacks (innocent customers)

Keep in mind a lot of this is negotiation tactics, the lawyers probably won’t really do retail clawbacks, but the lawyers are incentivized by their $2,000 an hour rate to argue about this for a few months.

Anti-CBDC Bill

The Biden administration is pursuing a Central Bank Digital Currency (CBDC) that is not open, permissionless, or public. CBDCs are dangerous because they let the government see every single transaction, can be programmed to expire and can be withdrawn directly from your wallet without your consent. They usher in a Chinese-style social credit system, and essentially everyone using them will be servants to the Federal Reserve.

Crypto-friendly congressman Tom Emmer just introduced a new Bill that will block the Federal Reserve from issuing a CBDC in the US, working on a CBDC in private, or using a CBDC to control the economy. The Swiss citizens have railed against their version of the CBDC and won enough signatures for a referendum vote on whether holding cash should be written into their constitution as a right of all people. Meanwhile, in Lebanon, people have had enough. They have burned down six banks and several politicians’ houses. It should be a warning to global leaders because this is what happens when you devalue a country’s currency by 98% and steal people’s livelihood.

Operation Choke Point 2.0

The original Operation Choke Point began in 2013 by the Obama Administration and was ended by Trump. Basically, banks were asked to close the accounts of companies involved in industries like money services, sex work, weapons, marijuana, and more. Now it’s happening to crypto companies.

Dec 6 - Silvergate Bank received a letter from Senator Warren, scolding them for providing services to FTX and Alameda

Dec 7 - Signature Bank announced it was shutting down a lot of crypto depositor accounts.

Jan 3 - OCC, Fed, and FDIC released a joint statement outlining the risks to banks engaging with the crypto industry

January 9 - Metropolitan bank announced a total shutdown of its crypto business

January 21 - Binance announced that because of Signature Bank’s new policy, they would only process fiat transactions worth more than $100K

Jan 27 - Federal Reserve and Kansas City Fed branch denied Caitlin Long’s Custodia Bank’s two-year application to become a member of the Federal Reserve system

Jan 27 - the Fed issued a policy statement discouraging banks from holding crypto assets or issuing stable coins

Feb 2 - the DOJ announced an investigation into Silvergate for its dealings with FTX and Alameda

Feb 6 - Binance suspended US bank transfers from retail clients

Feb 7 - the Jan 27 Fed statement was entered into the federal register, turning the policy statement into a final rule, with no congressional review or public notice-and-comment period

Feb 8 - Paxos application to become a National Trust looks like they will be denied by the OCC.

Feb 9 - SEC sued Kraken in an unprecedented action against staking

Feb 12 - Paxos was investigated by the SEC for issuing the Binance Stablecoin, which has been halted.

○ Just this week HSBC suspended the ability to buy crypto with credit cards.

While all this is happening in the US, other parts of the world are more welcoming of crypto projects, and the MiCA regulations will allow for the banking of these crypto platforms.

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