Column: Block.one investors try, try again for final OK on $22 million class settlement
The opinions expressed here are those of the author, a columnist for Reuters.
By Alison Frankel
May 29 (Reuters) -How do you catch the attention of a busy federal judge who has seemingly lost interest in your proposed class action settlement?
That’s the conundrum facing Grant & Eisenhofer, which represents a class of investors who contend they were misled about crypto tokens issued by blockchain company Block.one back in 2017.
Last May, after three years of litigation and the rejection of an initial $27 million settlement proposal, plaintiffs lawyers finally persuaded U.S. District Judge Lewis Kaplan of Manhattan to grant preliminary approval of a revised $22 million deal for investors who bought tokens in U.S. transactions. (Block.one agreed to the settlement but continued to deny wrongdoing.) As I told you at the time, the revised settlement seemed to be a rare win for investors alleging fraud claims against a token issuer.
If only things were that easy.
In July 2023, after notices went out to hundreds of thousands of potential class members, Grant & Eisenhofer moved for final approval of the deal, as well as $5.5 million in attorneys fees.
Kaplan scheduled a final approval hearing for September 2023 — but abruptly canceled it without explanation on the day it was supposed to take place.
Two months later — in between overseeing the prosecution of former FTX CEO Sam Bankman-Fried and the second civil trial of writer E. Jean Carroll’s defamation claims against former U.S. President Donald Trump — Kaplan issued an order directing Grant & Eisenhofer and Block.one’s lawyers from Davis Polk & Wardwell to submit a spreadsheet detailing the alleged losses of each of the 277 investors who had submitted a claim to administrators of the $22 million settlement fund.
Davis Polk and Grant & Eisenhofer emailed a joint letter to Kaplan’s chambers on Nov. 22, attaching a spreadsheet with the information the judge had requested.
Claimants’ losses, they explained, totaled about $8.5 million, far less than the $16 million that would remain in the settlement fund after the subtraction of legal fees and expenses. But class members were entitled to another $6 million or so in interest, Grant & Eisenhofer said. That would leave about $2 million in the settlement fund. Plaintiffs' lawyers proposed distributing the leftover money on a pro rata basis to class members who had submitted valid claims.
Kaplan apparently did not receive the letter.
In a terse one-page order in February, the judge denied Grant & Eisenhofer’s motion for final approval of the settlement. Kaplan said he’d ordered the parties to provide him with additional information about claimants’ losses and they hadn’t supplied that information.
Grant & Eisenhofer lawyers rushed to reassure Kaplan that they had, in fact, sent him the data soon after he asked for it. The lawyers offered apologies if their letter had somehow not reached the judge back in November — but also asked him to reconsider his rejection of the deal. For good measure, they attached the spreadsheets they’d first emailed to Kaplan’s chambers in November.
Kaplan did not respond, according to the docket.
A couple of days later, Grant & Eisenhofer sent the judge another letter with updated information on the claims process. The number of claims, the firm said, was up to 296, with alleged losses totaling $9.6 million.
Kaplan did not respond, according to the docket.
In March, Grant & Eisenhofer formally moved for reconsideration, pointing out that Kaplan’s sole reason for denying final approval was the parties’ purported failure to respond to his demand for detailed information about class members’ claims. In reality, the motion said, the judge had “overlooked” the letter providing exactly the information he sought.
Kaplan, once again, did not respond.
So last week, Grant & Eisenhofer filed a renewed motion for final approval of the settlement and the firm's request for attorneys’ fees, reminding Kaplan of the backstory behind his order denying the previous motion. In essence, the filing said that the claims process is complete and $22 million (plus interest) is sitting in a bank account awaiting Kaplan’s green light for distribution to investors.
As of midafternoon on Wednesday, the judge had not docketed any acknowledgement of the latest motion.
I emailed lawyers from Grant & Eisenhofer and Davis Polk about the stalled settlement but didn’t hear back. Block.one also did not respond to my query.
A $22 million securities settlement certainly isn’t the highest-profile matter on Kaplan’s docket. On Tuesday, for instance, the judge sentenced former FTX executive Ryan Salame to 90 months in prison for his role in an illegal campaign donation scheme.
It’s also true that only a relative handful of Block.one token purchasers filed claims to recover the money they lost when they bought crypto tokens issued by the company.
Nevertheless, a couple hundred class members stand to get back everything they lost, plus interest. The settlement received preliminary approval a year ago and the claims process is complete.
Kaplan's final assessment of the deal is the only thing standing between those investors and a $22 million payout — or, if the judge rejects the final settlement, between Block.one and the return of a $2 million settlement fund.
At the very least, both sides deserve to know whether the judge intends to issue a ruling on the merits of the deal.
Read more:
Block.one’s revived $22 mln settlement could be template for crypto class actions
Crypto investors' class settlement with Block.one killed by N.Y. judge
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