Season 5. Episode 3. BlockFi Inc. U.S. bankruptcy court hearing recording audio, October 30, 2025 #crypto

Confusion.

Indeed, judge. Apologies.

Not required. It happens. I just have a call at 10:30, which makes which is why I had to move forward. I I see your client. Good good morning.

Alright. Okay. This is the motion for reconsideration filed on behalf of, mister Van Tubingen, in the block by matter. Let me have appearances, please.

Good morning, your honor. Joe Magalays, Vekker Siemens on behalf of, the creditor, John Van Tubingen.

Van Tubingen. Good morning, your Honor. Tristan Axel, we're at Brown Rudnick, LLP for the Block five Wind Down Debtors.

And it was fifty-fifty, and my apologies. I knew I mispronounced it, the hard G versus the soft G, Mr. Van Tubingen. All right. Needless to say, I know there was a supplemental filing on behalf of Mr.

Van Tubingen yesterday that the court had the opportunity to review and review This is not our first go around in this matter of these issues. So let me turn to Mr. Magalies. Good morning.

Thank you, Judge.

What would you like to highlight or add?

But and I take it your honor, your honor had an opportunity to review my client's supplemental certification, judge? I did. Thank you. And I I owe this this court is obviously always, you know, on point with that. So I just wanted to make sure.

Thank thank you, judge. Judge, just generally speaking, first of all, thank you so much for your time, consideration, and courtesy. I believe this is the, second or third motion for reconsideration I filed before you're wrong on this matter. And a lot of judges will be cantankerous by now. So I just want to say off top, on a human level, your good natured spirit is very much appreciated, Judge.

We're just getting better at it. That's the way I look at it. It's practice.

And, Judge, and by the way, I'm dealing with, in enrollment of levity, if I may say, the gnarliest shaving cut I've had since I was a teenager. So just bear with me, General.

It's quite alright. It happened. I'm glad you're not in court leading over our furniture. So that's fine.

Yes. Judge, consistent with the directive on remand, we're just trying to get this issue of missing need correct. These issues are tricky. They're nuanced. We believe that we spotted a couple of things in the court's reasoning that warrant, further reviews.

And, you know, I wanna I do wanna echo something my my client said that has really resonated with me, which is, you know, he said to me, Joe, I feel like I'm seeing these numbers for the first time. And, you know, the court may agree or disagree with that. Mr. Axelrod will most likely disagree with that. But point being, the more we drill down, I think the closer we get to the truth.

Now legally, we have stuck with our frontline argument that the correct number is $8.95 Eth. And I I hearken back to one of the original findings this court made in its first decision was which was that mister Van Tubergen's mathematical framework analysis of the subject loan that we're talking about, it did make sense. And, Judge, by the way, I'll just say this very briefly at this point. That's why I think the 60% versus 50% LTV discrepancy, because the court found that it was consistent with traditional loans, but it was a unique loan. That's relevant because, you know, that's one of the things that mister Van Tubingen's mathematical framework highlighted.

And so when this court said that this LTV was consistent, I just want to bring the court back to when it originally found that Mr. Grant Tubingen's framework made some sense. And so we stuck with our front line argument that $8.95 was owed. The district court, raised the prospect of 245 ETH being owed. This court came out differently, came to zero.

And on reconsideration, our point is whatever the case may be, it can't be zero. And one of the points that we raised was that there is a portion of the ETH that they were credited as posting that seems to be unaccounted for. That is that, 296.571 amount, because the loan liquidation summary reflect reflects a rollover amount, available of 1,718.358. And Mr. Van Tubergen's point, this is unaccounted for.

And for us, this just raises a specter of a lack of confidence in the records that BlockFi has presented. And this gets back to what I led with, which is we're we just wanna keep drilling down on the truth. And I go back to the case that's still on appeal where one of our main arguments there is, what was the pricing metric that was actually used because we believe we're the only ones that actually put it on the record. And so, we don't we don't believe that BlockFi should be entitled to deference on on records. We really want them to be forced to prove every, every contention that they make.

In terms of the price spike argument, the same the same thing, judge. You know, I I know that they're in their reply. They are trying to rely on, the pricing that, mister Van Tubergen set forth in the aforementioned mathematical framework analysis of the subject loan. I looked at the response, specifically, paragraph 29, and I'm still not seeing a judge. So, you know, we really think that, they have not shown that the price went up in a way that would have trumped the district court's concern that the full portion of the ETH, even under their arguments, was not posted.

And that delta would have been, 245 ETH, I believe. And as to the scrivener's error argument, judge, you know, my my client, set forth a lot of points, both in our main papers and also the supplemental certification. It is a rather large difference, judge, as we know. Now I I your honor still found that it was akin to a clerical error. But my point, judge, is that and I wanna highlight now is the who, what, when, and how the error, has never been shown.

Like, precisely how did it occur? You know, who committed it? And and what was what was the fallout of it? You know, what was there anything contemporaneous at the time? The case law that you're on recited, did feature specifics as to the who, what, when, and how.

Whereas here, we have something that wasn't even raised pre bankruptcy. And to me, that suggests that it was a legal argument invoked by highly competent and skilled counsel rather than what actually happened as a matter of fact. And so, judge, and and I'll I'll end my my opening here with this. As part of the supplemental proceedings that we're requesting, we do think it makes sense to force BlockFi to document the factual nature of the scrivener's error, not just that, oh, whoopsie. Right?

But to tell us how. Because as mister Van Tubingen went chapter and verse, there would be a lot of errors that there have been many multitudes of Springer's errors littered throughout the document, including in the truth and lending statement.

All right, fair enough. Thank you, Mr. Magalies.

I'm going

to get another paper towel.

Thank you. Mr. Magalies has left the picture. Should I wait for him to return?

I'm sure he can hear. He's just grabbing We're

good, sir.

Thank you for your courtesy, sir.

Yes. All right. Thank you, Your Honor. So we've now, as counsel referenced, been through the reconsideration drill a few times. Unfortunately, for reasons that I'll try not to beat on too much, We have to create a record today.

So I just want to set forth, as we all know, the bankruptcy rules don't create a standard for reconsideration. It is understood that incorporated are rules fifty nine and sixty of federal rules of civil procedure. That's what we are here today to discuss. They set forth standards for reconsideration or relief from a judgment. And the standard is set forth in certain Your Honor's rulings, it's set forth in the papers.

But basically, there's four things that we might be looking for. There's clear legal error, there's manifest injustice, a change of controlling law or newly available evidence. There has been no change of controlling law. I don't think that's being argued. Notwithstanding that Mr.

Van Tuebergen may be seeing numbers for the first time, we're not talking today about newly available evidence. There actually was an argument about that earlier, which had to do with the document that was emailed to Mr. Van Tubergen six years ago, but we're not here today talking about that. So the standard that this court needs to address, I believe, is either clear legal error or manifest injustice, not merely rearguing what has been argued about now for at least months, if not two point five years, if not four years. This notion for reconsideration is re argument of a lot of different points.

It does not address the standard, unless it was needed for reconsideration. And most of the arguments that we've heard are just not correct, and so we're going to walk through them. The first reconsideration argument has to do with what's been referred to as the rollover from the prior loan into the E43 loan the E43 LSA, which is what the operative contract concerning what we call the missing HEAT. Mr. Van Tubergen says he's now looking at these numbers and the rollover should have been $17.18 ETH instead of $20.14 ETH.

I want to start out before we go too deep into the woods on this by quoting from the holding that is seeking to be sought to be reconsidered here. Nothing this is from Page five of the Your Honor's opinion. Nothing in the agreement, referring to the E43 LSA, suggests that BlockFi as lender was obligated to supply cryptocurrency collateral for the benefit of the borrower. And Mr. Van Tubingen's position that BlockFi was required to post collateral is not supported by the operative contract.

Accordingly, regardless of the collateral amount referenced in the E43 LSA, the obligation to post sufficient collateral rested at all times with Mr. Van Tubingen. So as we talk through these issues that surround how much collateral there was supposed to be, I think it's important to keep in mind that, that is all about a secondary holding in your Honor's penny. And there is no part of the motion for reconsideration that seeks reconsideration of the holding that if you look at the contract that Mr. Van Tubingen negotiated and executed, he was required to post collateral.

He did not do that. There was an integration clause. And so if you read the contract in the most textualist manner possible, which is what Mr. Van Tubergen has asked for expressly, if you read the contract in the most textualist manner possible, then any award where he gets back some bit of collateral is a windfall. And in fact, he borrowed $5,900,000 under this contract and collateral was liquidated on his behalf to satisfy, repay that obligation.

And so if you interpret the operative contract, he's already gotten a windfall because he never posted collateral, but collateral was essentially sold and given to him on his behalf. So now let's come back to the proposed difference between 1,700 and 2,000 ETH that was part of the rollover. Docket number nineteen sixty three, Exhibit C, this is part of the emails that preceded the E43 LSA, and we've talked about if you have to look outside the contract, then you look at these emails. I'm looking at it's the forty fifth page of the PDF in Docket Number nineteen sixty three. It says, in an e mail from BlockFi to Mr.

Van Tubergen on 06/29/2021, it refers to the existing February on the loan. That is the rollover amount. And Mr. Van Tubergen responds, below is confirmed. There's an exception to And so we have starting in 2021 an agreement that the rollover was $20.14 ETH, going through an agreement that then supersedes those emails and then years of litigation around this.

And this is the first time that we have heard, oh, it might be $1,700 There are multiple additional reasons that are stated in our papers why it does not make sense that this number would be $17.18, but I want to stress here because the motion for reconsideration is about clear error or manifest injustice. We're not meeting that standard. He agreed to a number at the time. He signed a contract. This was never raised in four years.

The second issue, Mr. Van Tubergen says that the court inaccurately found that the LTV ratio under this contract was 60%, which was the usual, and in fact, the usual may have been 50%. Again, this is not what the court's holding was about. I don't think there's any way you could argue that that observation of the court was important to any part of its holding. This is just not a missing Eth type of question.

I do want to observe that those same emails, docket number 1963 at Exhibit C, they agreed to an 80% LTV. The E43 LSA then says 60%. That was negotiated. Now read carefully and I think counsel was clear about this on anything is being obfuscated. Their point is not that the contract should have said 50% or that it should be interpreted as 50%.

What they're saying is that the court should have looked at all of the different LSAs and seen that actually the usual was 50% and that was changed. I don't understand why that makes any difference to the court's holding whatsoever. But even if that's the case, they haven't cited enough to support that or shown why it matters except in the context of arguing there was no scribiner's error, and I'm going to get to that point in a bit. The third argument that they make on reconsideration is, and I will quote here from their motion at Page nine, the court's finding they dispute the court's finding, I'm quoting, that the value of ETH rose during the course of negotiations. Here is what the court says in its opinion.

Block five further explains that because the value of ETH rose during the course of negotiations, etcetera. So that's not a finding of the court. That is the court observing what was argued by the parties and supported by evidence of various parties. And it's employed to reach the finding that the court makes, I'm now quoting from the opinion at pages eight and nine, the documentary record ellipsis demonstrates that the collateral pledge was precisely that which the parties agreed would back the loan. So to be clear, there's no incorrect finding of fact as to what the price change was in ETH or what happened there.

The court looked at the documentary record, it looked at explanations offered by the parties of that record and being a fact finder, the court made a fact finding. That fact finding is what the documentary record demonstrates, which is that the collateral pledge was precisely that which parties agreed would back the loan. Once again, that is ancillary to the primary holding in the opinion that if you interpret the contract as it was negotiated, then what Mr. Van Tubingen is seeking is a windfall that violates what he agreed to. Even so, I don't think, and we get into this somewhat in our papers, I don't think it's correct that the price of ETH did not rise.

I don't even know that we have a dispute about the movement of ETH at that time or how it affected what the parties were doing. If you look at the June 29 emails, you can actually see that Mr. Van Tubergen is acknowledging movements of ETH prices. He says, this offer does not expire today and will continue to be available until I identify a safe purchase price amount. So obviously, the price was increasing.

He was waiting for it to drop so that he wouldn't be at risk of an LTV default immediately when it was executed. Even so, the argument is just wrong about what the court was finding. And even reading the motion to reconsider, most charitably, this is just the second bite at the apple. It's just saying the court was maybe wrong about some little thing and because of that, it has to reconsider every portion of what it ordered and why. Finally, we get to the argument about whether or not there was a scrivener's error and what that means.

Once again, there is an integration clause. Mr. Van Tubergen argued the terms of the contract apply. He's not even seeking reconsideration of that, and the contract is binding. Under the

terms of the contract, he had to

post collateral. He didn't. So any collateral that was credited to him violated the contract, and he's already gotten a windfall. Anything more is a greater windfall at the expense of BlockFi's creditors. So I'm not sure that any of this really matters.

But setting that aside, the court looked at the entire documentary record and held that BlockFi's explanation of how you get to the amount of beef that was pledged, whether you need to look at parole evidence and why, what that parole evidence suggests, the court found that Lockhart's explanation was more persuasive. And I would submit it's the only reasonable explanation. That only brings us back full circle to what was argued about and ruled on before. One of two things has to be true. Either the contract applies and you interpret the contract as it was written, in which case Mr.

Van Tubergen is seeking a windfall Or you can look outside the contract and look at what the parties intended. And we've had a factual ruling looking at a lot of evidence about that. And it shows that any additional ethereum, any additional collateral credited to Mr. Van Tubergen at this point is also a windfall to him because it's just not what they negotiated. It doesn't make any sense.

Your Honor, I want to close again to make a record here, and I'm going to sound like a broken record because BlockFi has now said this many times. Mr. Van Tubergen made risky bets. He lost an unbelievable amount of money betting on the price of Ethereum tokens. And this litigation is the only way that he gets it back.

So he's holding up a massive process. He's denying recoveries to creditors of BlockFi, making purported settlement demands that we can't even engage with consistent with our fiduciary duties. The arguments we're hearing broadly contradict all the evidence. They're just an appeal of what's been said before. The fact that Mr.

Van Tubergen is seeing numbers in a new light is not relevant to any legal standard here. Mr. Van Tubergien could even win on all of the arguments he makes in the motion to reconsider, and he would still lose because he hasn't even addressed the primary holding of the opinion as to whether the text of the contract that we negotiated should control. Nothing that we are talking about today supports a finding that this court made any error, let alone a clear legal error that creates manifest injustice. The court looked at a lot of evidence and made a fact finding that's how this works.

And Mr. Van Tubergen will surely appeal that. That's what you need to do here. We will entertain settlement offers. I can tell you there's been nothing that any of our stakeholders, the plan administrator, the oversight committee creditors are allowing us to even entertain at all.

But there's a standard for reconsideration. That is what we're here for today, and he's not even close to meeting it.

All right. Thank you, Mr. Axelrod. Back to you, mister Magalies.

Alright. Judge, I just wanna make two, two points in in reply. I'll be brief. So, we're not here on a case in chief. We're here on remand, and the district court made a finding that it was not my client's obligation to post the collab.

And so that's one of the directives we're working on working under. And and so, the court's original finding that, you know, when you when you read the contract, there was nothing in there saying that BlockFi had to post a collateral. That's been undone, I believe, judge. And so the exercise is to find how much was BlockFi obligated to post. Also, judge, you know, my my fellow member of the bar is is an excellent oral presenter, but, you know, the the price spike argument is still not fleshed out.

I I don't know what it means that parties were acknowledging the movement of pricing. What I didn't hear is a specific explanation as to why the $2.45 ETH delta that this accord itself identified, how that goes away. So I do believe that a further record is required on that issue.

Alright. Thank you, counsel. Let me address this motion. The district court in remanding the issue back to this court was unclear as to the proper, we'll call it, disposition of $2.45 shares $2.45 ETH. And was unclear that a proper record had been established addressing the loss of each claim.

That's what the court remanded back to this court and this court addressed in its opinion. In fact, it was the district court that raised the integration issue in a footnote towards the conclusion of its opinion. When this court issued its opinion on September 11 in addressing the remand issues, the court essentially addressed two primary issues, simple issues. We thought it was simple. Which party under the loan transaction in which $5,928,830.21 was borrowed, which party was required to post the collateral and number two, how much collateral had to be posted?

That in essence is the primary focus of the September 11 opinion and it remains the primary focus in front of this court. Other issues are before the district court on appeal and this court doesn't have the jurisdiction and authority to address them. Well, as argued by the wind down debtor, this court finds that there's been no showing under Rules 59 or 60, taking into consideration five zero two that the court has made either a clear error or that there's a manifest injustice. Court accepts the suggestion of the district court that there was an integration clause at play and of the parties and end of the movement, the inquiry stops because it's clear that this loan transaction is consistent with virtually every loan transaction. There's an obligation of the borrower to post the collateral.

And that's clear from the language of LSA E43. If the court looks beyond and this was reflected in my opinion, prior opinion, if the court looks beyond the four corners of LSA E43 three and takes into account the available parole evidence and other documentation, there's no change in the conclusion that the borrower is responsible for posting the collateral. The court observes that no documentation pointed to BlockFi's responsibility to ultimately post the collateral that secured alone that it was making to Mr. Van Tubergen. That's not how lending works.

Our lenders don't provide the collateral. They provide the funding possibly in here to acquire the collateral. But going beyond that then if we go to the second question, the parol evidence confirms to this court as it found that the amount of the collateral that was agreed to be posted was in an amount that took into account the rollover collateral from LSA's seven eighty five and required an additional posting by the borrower of $13.20 ETH for a total collateral base of 3,334.93 ETH. That's what the parole evidence informed the court. And again, the other issues that have been raised today do not detract from those findings.

So the court is not prepared to find either clear error or manifest injustice or any of the other requirements under Rules 59 or 60 have been satisfied unless an IRS five zero two j, the court will leave the parties to their appellate rights. I'll ask BlockFi to submit a form of order. Thank you, counsel.

Have a good day, everyone. Have a good

day. Take care. Be well.