When crypto lending platforms like Celsius, BlockFi, Voyager, and Genesis collapse, billions in customer funds become trapped in bankruptcy proceedings. This playbook guides you through filing proofs of claim, pursuing third-party defendants, and maximizing recovery from bankrupt crypto lenders.
Major Crypto Lending Bankruptcies
Platform
Bankruptcy Filing
Estimated Claims
Recovery Status
Celsius Network
July 2022 (Chapter 11)
$4.7 billion
Plan confirmed; distributions ongoing
Voyager Digital
July 2022 (Chapter 11)
$1.3 billion
Liquidating; partial distributions made
BlockFi
November 2022 (Chapter 11)
$1.2 billion
Plan confirmed; distributions in progress
Genesis Global
January 2023 (Chapter 11)
$3.5 billion
Plan confirmed; settlements reached
FTX/Alameda
November 2022 (Chapter 11)
$8+ billion
Complex litigation ongoing
Why Demand Letters Still Matter
Bankruptcy stays direct claims against debtors, but third parties remain liable.
Executives, auditors, and business partners may face separate litigation.
Demand letters preserve claims and establish facts for litigation trusts.
SEC enforcement disgorgement funds may supplement bankruptcy distributions.
Realistic Recovery Expectations
Unsecured creditors typically recover 30-70% over 2-4 years.
Crypto price appreciation since bankruptcy may increase dollar recoveries.
Priority claims and secured creditors receive distributions first.
Earn account holders generally treated as unsecured creditors.
Bar Date Critical: Every bankruptcy has a deadline (bar date) to file proofs of claim. Missing this deadline may forfeit your entire recovery. Check PACER or the claims agent website for your specific case deadline and file immediately.
Legal Framework for Crypto Lending Claims
Bankruptcy Code Provisions
Chapter 11 Reorganization: Most crypto lenders filed Chapter 11, allowing reorganization or sale of assets while paying creditors.
Automatic Stay (11 U.S.C. Section 362): Bankruptcy filing halts all collection actions against the debtor. Third-party claims are not stayed.
Proof of Claim (Bankruptcy Rule 3001): Creditors must file proofs of claim to participate in distributions.
Preference Actions (11 U.S.C. Section 547): Withdrawals within 90 days of bankruptcy may be clawed back as preferences.
SEC and Securities Law
SEC Enforcement: The SEC has pursued actions against crypto lenders for offering unregistered securities through yield-bearing accounts.
Securities Act Section 5: Crypto lending products offered without SEC registration violate federal securities law.
SEC v. Genesis (2023): $21 million settlement establishing lending products as securities.
BlockFi SEC Settlement: $100 million penalty for unregistered securities offering.
State Regulatory Actions
State Securities Laws: Multiple states issued cease and desist orders against crypto lenders.
Consumer Protection: State AGs have pursued UDAP claims against crypto lending platforms.
CFTC Jurisdiction
CFTC regulates crypto commodities including Bitcoin and Ethereum.
Fraud and manipulation in crypto commodity markets violates the Commodity Exchange Act.
CFTC enforcement can result in restitution orders for victims.
Litigation Trusts: Many crypto bankruptcies create litigation trusts to pursue claims against third parties on behalf of all creditors. These trusts may sue executives, auditors, counterparties, and others. Monitor plan documents for litigation trust provisions and potential distributions.
Documentation Checklist
Account Records
Complete account statements showing all deposits, withdrawals, and balances.
Screenshots of account dashboard before platform freeze.
Email confirmations for all transactions.
Terms of service and account agreements you accepted.
Blockchain Evidence
Transaction hashes for deposits to the platform.
Wallet addresses you sent crypto from.
Platform deposit addresses that received your crypto.
Any on-chain evidence of platform mismanagement.
Marketing and Promotional Materials
Advertisements promising specific yield rates.
Platform statements about safety, insurance, or collateralization.
Executive interviews and public statements.
Referral program communications if you recruited others.
Communications
Email correspondence with customer support.
Platform announcements about the freeze or bankruptcy.
Any responses to withdrawal requests.
Community forum or social media communications from official accounts.
Proof of Claim Documentation: When filing your proof of claim, attach account statements, transaction records, and a clear calculation of your claim amount. Claims agents often reject incomplete filings. Include both the crypto amounts and dollar values at relevant dates.
Demand Letter Strategy
Understanding the Automatic Stay
The bankruptcy automatic stay prohibits demand letters and collection actions against the debtor.
Focus demand letters on non-debtor third parties not protected by the stay.
Participate in bankruptcy proceedings to recover from the estate.
Monitor for stay relief opportunities if debtor misconduct is proven.
Viable Third-Party Targets
Executives and Insiders: Personal liability for fraud, breach of fiduciary duty, or fraudulent transfers.
Auditors and Accountants: Professional negligence for failing to identify financial problems.
Business Partners: Counterparties who received preferential or fraudulent transfers.
Promoters and Influencers: Individuals who received undisclosed compensation for promoting the platform.
Parent Companies/Affiliates: Related entities that may have liability for platform operations.
Letter Components for Third Parties
Your Losses: Document your deposits, frozen balance, and estimated loss.
Recipient's Role: Explain how the recipient contributed to or benefited from the platform's misconduct.
Legal Theories: Identify specific claims (fraud, negligence, aiding and abetting, unjust enrichment).
Regulatory Context: Reference SEC, CFTC, or state enforcement actions.
Specific Demands: Request compensation, information, or other appropriate relief.
Litigation Warning: Notice that failure to respond will result in legal action.
Coordinate with Bankruptcy: Individual litigation against third parties may be subject to coordination orders from the bankruptcy court. Some claims may be property of the bankruptcy estate. Consult counsel before filing suit to avoid jurisdictional conflicts.
Sample Crypto Lending Bankruptcy Demand Letter
[Date]
[Recipient - Executive/Auditor/Promoter]
[Address]
Re: Demand for Compensation - [Platform Name] Crypto Lending Losses
Frozen Balance: [Amount] BTC/ETH/USDC
Dollar Value: $[Amount]
Bankruptcy Case: [Case Number, Court]
Dear [Recipient]:
I represent [Creditor Name], a creditor in the [Platform Name] bankruptcy who has filed a proof of claim for $[Amount]. This letter demands compensation for losses caused by your [misconduct/negligence/fraudulent promotion] in connection with [Platform Name]'s operations.
ACCOUNT SUMMARY
My client maintained accounts at [Platform Name] from [Start Date] to the platform freeze on [Freeze Date]. Account details:
Earn Account:
- Deposited: [Amount] [Currency]
- Accrued Interest: [Amount] [Currency]
- Frozen Balance: [Amount] [Currency]
- Dollar Value at Freeze: $[Amount]
[Custody Account if applicable]:
- Deposited: [Amount] [Currency]
- Frozen Balance: [Amount] [Currency]
My client relied on [Platform Name]'s representations about [safety/collateralization/insurance/regulatory compliance] when depositing funds.
YOUR ROLE
[For Executive:]
As [Title] of [Platform Name], you had direct knowledge of and responsibility for:
1. The platform's financial condition and solvency;
2. Representations made to depositors about asset safety and collateralization;
3. Risk management practices and counterparty exposure;
4. Compliance with securities laws and state regulations.
Public statements you made include:
- [Quote from interview, tweet, or company communication]
- [Quote about platform safety or financial health]
These statements were materially false and misleading. [Describe why - e.g., platform was insolvent, assets were not properly collateralized, etc.]
[For Auditor:]
Your firm provided [audit/attestation/accounting] services to [Platform Name]. Your work product included:
- [Specific report or attestation]
- [Statements about financial condition]
You failed to identify or disclose [specific deficiencies], constituting professional negligence. A reasonably competent auditor would have detected [red flags].
[For Promoter:]
You promoted [Platform Name] to your audience through [social media/YouTube/podcast]. Your promotional activities included:
- [Description of promotional content]
- [Specific claims made about platform safety or returns]
You received $[Amount] in compensation for this promotion, which was not adequately disclosed. Your promotional statements induced my client and others to deposit funds.
LEGAL BASIS
Your conduct gives rise to the following claims:
- Common law fraud and fraudulent misrepresentation
- Negligence and professional malpractice [for auditor]
- Breach of fiduciary duty [for executive]
- Aiding and abetting fraud
- Unjust enrichment
- [State] Consumer Protection Act violations
- Securities Act Section 12 (unregistered securities)
REGULATORY CONTEXT
The SEC has established that crypto lending products constitute securities. [Platform Name] operated without proper registration. The SEC filed enforcement action [Case Name/Number] addressing these violations. [Include references to specific SEC, CFTC, or state actions as applicable.]
DEMANDS
1. Payment of $[Amount] representing my client's losses;
2. Accounting of all compensation received from [Platform Name];
3. Preservation of all documents relating to your involvement with [Platform Name];
4. Cooperation with the bankruptcy trustee's investigation.
RESPONSE DEADLINE
Please respond within twenty-one (21) days. The automatic stay in the [Platform Name] bankruptcy does not protect non-debtor third parties from litigation. Failure to respond will result in:
- Filing of civil litigation seeking damages and attorney fees;
- SEC and state attorney general referrals;
- Coordination with the bankruptcy litigation trust for consolidated action.
My client reserves all rights and remedies.
Sincerely,
Sergei Tokmakov
Attorney for [Creditor Name]
owner@terms.law
Enclosures:
- Exhibit A: Account Statements and Transaction Records
- Exhibit B: Proof of Claim Filing
- Exhibit C: Promotional Materials/Public Statements
Yes, creditors can file objections to proposed bankruptcy plans. Objections must be filed by the deadline specified in the disclosure statement. Common objections include unfair classification of claims, inadequate disclosure, and improper releases of third parties. The bankruptcy court considers objections at confirmation hearings. Pro se objections are permitted but complex plan issues benefit from attorney representation.
Withdrawals within 90 days of bankruptcy filing may be subject to preference clawback actions under Section 547 of the Bankruptcy Code. The trustee can demand return of preferential transfers. Defenses include ordinary course of business and contemporaneous exchange for new value. If you receive a preference demand, consult bankruptcy counsel immediately. Small preference recipients may be released under de minimis thresholds.
Claims trading offers immediate liquidity at a discount to expected recovery. Traders typically offer 30-60% of face value depending on recovery estimates and timing. Selling makes sense if you need immediate funds or believe recovery will be lower than the offer. Holding your claim makes sense if you can wait for distributions and believe recovery will exceed the offer. Get multiple quotes before selling.
Attorney Services & Contact
Crypto Lending Bankruptcy Recovery
I represent creditors in major crypto lending bankruptcies including Celsius, BlockFi, Voyager, and Genesis. Services include proof of claim filing, plan objections, third-party demand letters, and coordination with litigation trusts.
Email owner@terms.law or use Calendly for a paid strategy session.