If you lost money through BlockFi Interest Accounts, you may have legal options to seek recovery through individual litigation or arbitration. BlockFi’s collapse in November 2022, following the implosion of FTX, left hundreds of thousands of investors facing significant losses. The Securities and Exchange Commission had already found that BlockFi sold unregistered securities and made materially false statements to investors — findings that form the foundation for individual securities fraud claims. This page explains the legal framework, the claims available, and how to evaluate your options.
Key Takeaways
- SEC enforcement: In February 2022, the SEC settled with BlockFi for $100 million after finding that BlockFi Interest Accounts were unregistered securities and that BlockFi made materially false statements about the safety of customer deposits.
- Bankruptcy case: BlockFi filed for Chapter 11 bankruptcy on November 28, 2022 (In re BlockFi Inc., Case No. 22-19361, Bankr. D.N.J.), affecting more than 100,000 creditors.
- No FINRA arbitration against BlockFi: BlockFi was not a FINRA-registered broker-dealer. FINRA arbitration is not available against BlockFi directly — but investors who learned of BlockFi through a FINRA-registered advisor may have separate arbitration claims against that advisor’s firm.
- Individual claims available: Securities fraud claims under Exchange Act § 10(b) and Rule 10b-5, and state securities laws, remain viable options for investors with substantial losses, subject to applicable statutes of limitations.
- Time limits apply: Statutes of limitations on securities fraud claims began running at the time of the underlying conduct and discovery. Prompt legal consultation is essential.
What Happened to BlockFi
BlockFi, founded in 2017 by Zac Prince and Flori Marquez, operated as a cryptocurrency lending platform that offered investors yields of up to approximately 9.5% APR through its BlockFi Interest Accounts (BIAs). The company grew rapidly, but its business model carried substantial undisclosed risks.
BlockFi loaned customer deposits to institutional borrowers, including Alameda Research — the hedge fund affiliated with the FTX exchange. When FTX collapsed in November 2022, BlockFi’s exposure to both FTX and Alameda Research left it unable to meet obligations to customers. The company’s own risk management team had warned CEO Zac Prince about the dangers of loans collateralized by FTT tokens — warnings that were not heeded. Court documents indicate BlockFi extended nearly $900 million in loans to Alameda between July and September 2022, predominantly collateralized by FTT tokens that became worthless when FTX failed.
BlockFi filed for Chapter 11 bankruptcy on November 28, 2022 (In re BlockFi Inc., Case No. 22-19361, Bankr. D.N.J.), disclosing more than 100,000 creditors. At the time of filing, the company had approximately $1.2 billion in assets tied to FTX and Alameda Research, including approximately $355 million frozen on the FTX platform and approximately $671 million in outstanding loans to Alameda — figures disclosed in court filings and contemporaneous reporting. Sam Bankman-Fried, the founder of FTX, was sentenced to 25 years in federal prison for defrauding customers of FTX and lenders of Alameda Research.
Important: BlockFi was not a FINRA-registered broker-dealer. As a result, FINRA arbitration is not available as a direct avenue against BlockFi. Investors who held BlockFi Interest Accounts and who also had their investment recommended by a FINRA-registered broker or financial advisor may have separate arbitration claims against that advisor’s employing brokerage firm — a distinct and often more viable avenue for recovery.
SEC Enforcement and Securities Law Violations
In February 2022, the SEC announced a $100 million settlement with BlockFi — at the time, described as a “first-of-its-kind” enforcement action against a crypto lending platform. The settlement was divided: $50 million to the SEC and $50 million to 32 state securities regulators through the North American Securities Administrators Association (NASAA).
The SEC’s findings, set out in its Administrative Order (Release No. 33-11029), establish the doctrinal basis for individual investor claims:
Unregistered Securities Offering
§ 5 of the Securities Act of 1933, 15 U.S.C. § 77e, prohibits the offer and sale of securities without an effective registration statement. The SEC determined that BlockFi Interest Accounts qualified as securities — as investment contracts under the Howey test (SEC v. W.J. Howey Co., 328 U.S. 293 (1946)) and as notes under the Reves test (Reves v. Ernst & Young, 494 U.S. 56 (1990)). BlockFi violated § 77e by selling BIAs without registration.
Material Misstatements About Risk
BlockFi told investors that its institutional loans were “typically” over-collateralized. SEC findings revealed this was materially false: in 2019, approximately 24% of loans were over-collateralized; in 2020, approximately 16%; in 2021 (through June), approximately 17%. This misrepresentation supports claims under § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5.
Over-Collateralization: What BlockFi Said vs. What the SEC Found
| Year | BlockFi’s Public Claim | Actual Over-Collateralization (SEC Findings) |
|---|---|---|
| 2019 | Loans “typically” over-collateralized | Approximately 24% of loans |
| 2020 | Loans “typically” over-collateralized | Approximately 16% of loans |
| 2021 (through June) | Loans “typically” over-collateralized | Approximately 17% of loans |
Source: SEC Administrative Order, Release No. 33-11029 (Feb. 14, 2022). These figures demonstrate that BlockFi’s representations were not incidental overstatements — the gap between the public claim and the documented reality was consistent across multiple years.
Individual Legal Claims Available to BlockFi Investors
Investors who lost money through BlockFi Interest Accounts may have multiple legal theories available for pursuing individual recovery. Varnavides Law does not handle class action representation — the firm focuses on individual investor claims where the analysis of specific circumstances, actual losses, and applicable law can be applied rigorously. The specific claims applicable to your situation depend on when you invested, your residency, your total losses, and whether any financial advisor recommended the product.
Securities Fraud — Rule 10b-5 Claims
Claims under § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5 (prohibiting deceptive devices and fraud in connection with securities transactions), require proof of: (1) a material false statement or omission; (2) in connection with the purchase or sale of a security; (3) scienter; (4) reliance; (5) economic loss; and (6) loss causation. BlockFi’s documented false statements about collateralization provide the evidentiary foundation.
Unregistered Securities — Civil Liability Under § 12(a)(1)
§ 12(a)(1) of the Securities Act of 1933, 15 U.S.C. § 77l(a)(1), imposes liability on any person who offers or sells a security in violation of the § 5 registration requirements (15 U.S.C. § 77e). A § 12(a)(1) claim for rescission requires privity — the plaintiff must have purchased directly from the defendant (or someone in the statutory seller chain). Purchasers who bought on the secondary market or through intermediaries may face privity limitations and should discuss the specific facts with counsel.
State Securities Laws
Most states have securities fraud statutes — often called “Blue Sky laws” — that provide remedies for investors harmed by fraud or the sale of unregistered securities. California’s securities law (Cal. Corp. Code § 25400 et seq.) and New York’s Martin Act (N.Y. Gen. Bus. Law § 352) (Attorney General enforcement only — no private right of action for individual investors) offer important protections. State claims may provide different limitations periods and remedies than federal law.
Breach of Fiduciary Duty and Related Claims
Beyond statutory securities claims, BlockFi investors may have additional legal theories depending on the specific circumstances of their investment:
- Breach of Fiduciary Duty: Individual investors generally cannot bring direct breach-of-fiduciary-duty claims against BlockFi’s officers — under Delaware corporate law, officer and director fiduciary duties run to the corporation and its shareholders, not to depositors or creditors (see N. Am. Catholic Educ. Programming Found. v. Gheewalla, 930 A.2d 92 (Del. 2007)). Such claims are derivative and, given BlockFi’s Chapter 11 reorganization, now belong to the bankruptcy estate’s litigation trust. Investors whose losses stem from BlockFi officers’ failure to disclose material risks may have better-supported claims under negligent misrepresentation or breach of contract.
- Negligent Misrepresentation: False statements about the safety of deposits and the nature of lending practices may support claims for negligence, where the standard of care for reasonable disclosure was not met.
- Breach of Contract: Investors who relied on specific contractual representations made by BlockFi about the treatment of their deposited assets may have breach of contract claims arising from those representations.
Note on bankruptcy proceedings: BlockFi’s Chapter 11 reorganization plan included a March 2024 agreement with the FTX and Alameda Research bankruptcy estates, providing BlockFi with approximately $874.5 million in claims. Creditor distributions through the bankruptcy process have been ongoing. However, individual securities fraud claims against responsible parties — including BlockFi’s executives and any FINRA-registered advisors who recommended the product — exist separately from the bankruptcy recovery process.
Statutes of Limitations for BlockFi Claims
Time limits are one of the most important considerations for investors evaluating whether to pursue a claim. The applicable limitations period depends on the type of claim, when you discovered the fraud or loss, and the jurisdiction in which the claim is brought.
Federal Securities Fraud — § 10(b) / Rule 10b-5
Under 28 U.S.C. § 1658(b), claims under Securities Exchange Act § 10(b) (15 U.S.C. § 78j(b)) and Rule 10b-5 must be filed: (1) within 2 years after the date of discovery of the facts constituting the violation, and (2) no later than 5 years after the date the violation occurred. Because BlockFi’s bankruptcy was filed in November 2022 and the SEC’s enforcement findings were published in February 2022, the discovery clock began running for many investors at or around those dates.
State Securities Law Claims
Limitations periods for state securities fraud claims vary by jurisdiction. California Corp. Code § 25506(b) provides the earlier of: five years from the date of the violation, or two years from the date of discovery — whichever expires first controls. Other states may differ. The applicable limitations period for your state claim depends on where you reside and where the transaction occurred. Prompt legal consultation is the only reliable way to determine whether your state claim remains timely.
Time-sensitive: The statutes of limitations for many BlockFi-related claims have been running since at least November 2022 (bankruptcy) and February 2022 (SEC settlement). Depending on when you discovered your losses and the type of claim, your window for filing may be limited. Do not delay in seeking legal advice.
FINRA Arbitration: When It Applies — and When It Doesn’t
A key distinction in BlockFi investment claims is the availability of FINRA arbitration. FINRA arbitration is available only against FINRA-registered broker-dealers and their associated persons. BlockFi was not a FINRA member. Therefore, FINRA arbitration is not a direct avenue against BlockFi, its officers, or its affiliated entities.
However, FINRA arbitration may be available against a third party — if a FINRA-registered broker or financial advisor recommended BlockFi products to you. In that case, claims against the broker’s employing firm may be pursued through FINRA’s arbitration forum. The 6-year eligibility window under FINRA Rule 12206(a) of the FINRA Customer Code is an eligibility rule that determines which customer disputes may be heard in FINRA arbitration — it is not a statute of limitations in the legal sense and does not replace any applicable state or federal limitations period. FINRA Rule 12206(a) provides that “no claim shall be eligible for submission to arbitration under the Code where six years have elapsed from the occurrence or event giving rise to the claim”; whether the substantive claim is also timely under its own limitations period is a separate legal question.
Common FINRA arbitration claims against advisor firms arising from crypto product recommendations include:
- Unsuitable Recommendations (FINRA Rule 2111): FINRA Rule 2111 requires broker recommendations to satisfy three suitability components: (1) reasonable-basis suitability — the broker must understand the product’s risks and potential rewards; (2) customer-specific suitability — the recommendation must fit the investor’s risk tolerance, investment objectives, and financial situation; and (3) quantitative suitability — the volume and frequency of recommendations must not be excessive. Recommending a volatile, unregistered crypto lending product without understanding its risks or without regard to an investor’s profile may violate one or more of these components.
- Failure to Supervise (FINRA Rule 3110): Brokerage firms have an obligation to supervise their registered representatives. A firm that failed to maintain adequate procedures to detect and prevent unsuitable crypto product recommendations may face liability.
- Misrepresentation (FINRA Rule 2010): Advisors who misrepresented the safety, regulatory status, or risk profile of BlockFi products may have violated FINRA Rule 2010, which requires members to observe high standards of commercial honor and just and equitable principles of trade.
Varnavides Law represents claimants in FINRA arbitration — investors bringing claims against brokerage firms. Because FINRA arbitration is not state-bar-bound, representation is available to investors wherever FINRA arbitration proceedings are held, including investors based in California and across the country.
The Bankruptcy Process and What It Means for Your Claims
BlockFi’s Chapter 11 bankruptcy proceeding (Case No. 22-19361, Bankr. D.N.J.) has proceeded through confirmation of a reorganization plan. The plan incorporated a March 2024 settlement with the FTX and Alameda bankruptcy estates that provided BlockFi with approximately $874.5 million in claims, including approximately $250 million treated as a secured claim. Distributions to creditors have been administered through Kroll Restructuring Administration.
As of 2026, investors who held BlockFi Interest Accounts have filed proofs of claim in the bankruptcy proceeding. The bankruptcy distribution is a separate process from individual securities fraud litigation — recovering through the bankruptcy estate does not necessarily bar a claim for damages against individual officers or third-party advisors, though any recovery may affect damages calculations. Investors who received partial bankruptcy distributions and are considering additional claims should consult with an attorney familiar with the interplay between bankruptcy creditor claims and securities litigation.
Jurisdiction note: The BlockFi reorganization case is pending in the federal bankruptcy court where the case was filed (Case No. 22-19361). Federal securities fraud claims against BlockFi’s officers and former executives may be brought in the appropriate federal district court. Gary Varnavides holds active federal district court admissions in the Southern District of New York (SDNY), the Eastern District of New York (EDNY), and the Central District of California (C.D. Cal.). Federal court matters outside those districts may require coordination with local counsel for that court, which we can arrange.
Evaluating Your BlockFi Claim
Determining whether you have a viable claim and the best avenue for pursuing recovery requires careful analysis of your specific circumstances. Two categories of information are most important:
Documents to gather:
- Account statements showing deposits, balances, and accrued interest
- Communications from BlockFi regarding your account
- Marketing materials that influenced your investment decision
- Records of any specific representations made to you verbally or in writing
- Proof of deposits and any withdrawals or distributions received
Questions that affect which claims are available:
- Did a FINRA-registered broker or financial advisor recommend BlockFi to you?
- Were you shown specific marketing materials or promotional claims by a third party?
- Did the investment come through a financial platform or advisory firm?
- Did you receive any written representations about safety, insurance, or collateralization?
Varnavides Law evaluates individual investor claims in securities matters involving $100,000 or more in losses. If your losses are below that threshold, the economics of individual litigation may not be favorable, and you should discuss your situation with counsel.
Why Choose Varnavides Law for Your BlockFi Investment Claim
Pursuing claims arising from cryptocurrency fraud requires an attorney who understands both federal securities law and the unique challenges of crypto-related litigation — including the interplay between bankruptcy proceedings, SEC enforcement findings, and individual investor claims.
Gary Varnavides brings a distinctive perspective to these cases. Before founding Varnavides Law, PC, Gary spent more than 10 years at Sichenzia Ross Ference LLP in New York City defending broker-dealers and financial institutions in FINRA arbitrations and securities matters. That experience — on the defense side — provides direct insight into how financial institutions and their executives structure defenses, what arguments they rely on, and where their positions are most vulnerable. Gary now applies that knowledge exclusively on behalf of investors.
Varnavides Law is licensed to practice in California and New York. Gary holds federal court admissions in the Southern District of New York (SDNY), the Eastern District of New York (EDNY), and the Central District of California (C.D. Cal.). Gary has been recognized by New York Super Lawyers as a Rising Star from 2015 through 2023, placing him among the top 2.5% of attorneys in the New York Metro area.
Frequently Asked Questions
Is FINRA arbitration available for my BlockFi losses?
FINRA arbitration is only available against FINRA-registered broker-dealers and their registered representatives. Because BlockFi was not a FINRA member firm, FINRA arbitration cannot be used to bring claims directly against BlockFi or its officers. However, if a FINRA-registered broker, financial advisor, or brokerage firm recommended that you invest in BlockFi products, you may have a separate FINRA arbitration claim against that advisor’s employing firm — distinct from any claim against BlockFi itself. Those claims commonly allege unsuitable recommendations, failure to supervise, and misrepresentation of material risks.
What legal claims can I bring against BlockFi as an individual investor?
Individual investors may have claims under Securities Exchange Act § 10(b) (15 U.S.C. § 78j(b)) and Rule 10b-5 (for material misrepresentations about collateralization and risk), Securities Act § 12(a)(1) (15 U.S.C. § 77l(a)(1)) (for the offer and sale of unregistered securities, subject to privity requirements), state securities laws, and common law theories such as negligent misrepresentation and breach of contract. The SEC’s 2022 settlement with BlockFi establishes the factual and doctrinal foundation for many of these claims. The strength of any individual claim depends on the investor’s specific circumstances, timing, and documented losses.
What is the statute of limitations for BlockFi securities fraud claims?
For federal securities fraud claims under § 10(b) and Rule 10b-5, 28 U.S.C. § 1658(b) imposes a two-year limitations period from the date of discovery of the facts constituting the violation, subject to a five-year outside limit from the date the violation occurred. For state securities law claims, the limitations period varies by jurisdiction — California Corp. Code § 25506(b) provides the earlier of: five years from the date of the violation, or two years from the date of discovery — whichever expires first controls. Because BlockFi’s bankruptcy was filed in November 2022 and the SEC’s enforcement action was published in February 2022, the limitations clock has been running for a substantial period. Contact an attorney promptly to assess whether your claim remains timely.
What is FINRA Rule 12206, and does it apply to BlockFi claims?
FINRA Rule 12206(a) of the FINRA Customer Code provides that “no claim shall be eligible for submission to arbitration under the Code where six years have elapsed from the occurrence or event giving rise to the claim.” This is an eligibility rule for the arbitration forum — not a statute of limitations in the legal sense. Because BlockFi was not a FINRA member, Rule 12206 does not apply directly to claims against BlockFi. For investors who are pursuing FINRA arbitration claims against a brokerage firm that recommended BlockFi, Rule 12206 sets the eligibility window for that separate proceeding.
If I received some distribution through the BlockFi bankruptcy, can I still bring a claim?
Receiving a partial recovery through the bankruptcy distribution process does not necessarily extinguish individual securities fraud claims against responsible officers, directors, or third-party financial advisors who are not part of the bankruptcy estate. However, any bankruptcy distribution received may be relevant to calculating damages in a subsequent claim, as courts generally apply setoff principles to avoid double recovery. The interaction between bankruptcy creditor claims and individual securities litigation is complex, and you should consult with an attorney who can analyze your specific situation.
What if a financial advisor recommended I invest in BlockFi?
If a FINRA-registered broker or financial advisor recommended that you invest in BlockFi products, you may have a claim against that individual and their employing brokerage firm through FINRA arbitration. These claims — typically for unsuitable recommendations, failure to supervise, and misrepresentation — are entirely separate from any claim against BlockFi itself and are not affected by BlockFi’s bankruptcy. Brokerage firms remain solvent and able to satisfy FINRA arbitration awards. The existence of a recommendation from a licensed professional is an important fact that changes the legal landscape significantly.
What documents should I gather to evaluate my BlockFi claim?
Gather: (1) BlockFi account statements showing deposits, accrued interest, and your balance at the time BlockFi filed for Chapter 11; (2) any emails or written communications from BlockFi regarding your account or the safety of your assets; (3) marketing materials or promotional content that influenced your investment decision; (4) records of any conversations with brokers, advisors, or platform representatives who recommended the investment; and (5) documentation of any amounts already received through the bankruptcy distribution process. Even if your online account access has been terminated, an attorney can assist in obtaining records through formal discovery or document requests.
Does Varnavides Law take cases on contingency?
Fee arrangements depend on the facts, claims, and scope of representation. During your consultation, the firm can discuss whether contingency, flat-fee, hourly, or another arrangement may be available for your matter. We evaluate cases involving $100,000 or more in investment losses for securities matters.
Discuss Your BlockFi Investment Losses with Varnavides Law
If you lost money through BlockFi Interest Accounts — whether through the company’s collapse, misrepresentations about the safety of your deposits, or a recommendation from a financial advisor — individual legal remedies may be available. Contact Varnavides Law to schedule a free consultation and evaluate your options. We serve investors across California and represent clients nationwide in FINRA arbitration matters.