What Crypto "HODLers" Need To Know: Clawback Risks In Bankruptcy

Cryptocurrency lender BlockFi filed for Chapter 11 bankruptcy protection on November 28^th, a little more than two weeks after FTX, one of the world's largest cryptocurrency exchanges, filed for bankruptcy. Many users have had their assets locked on these platforms and will likely be forced to wait for the conclusion of the Chapter 11 proceedings before receiving any distributions, while other customers were able to make pre-bankruptcy withdrawals. However, even those able to withdraw assets may be in for a rude awakening as the debtors-in-possession or bankruptcy trustees begin to explore clawback – or, here, "preference" – claims against withdrawing customers. Although the crypto bankruptcy cases are in their early stages, some of the initial Bankruptcy Court rulings and positions taken by major stakeholders can shed light on customers' preference exposure and potential defenses. This article will explore potential preference risks and defenses for customers