According to a filing by the committee of unsecured creditors in the US bankruptcy court, Zac Prince, the CEO of BlockFi, allegedly disregarded the warnings from the firm's risk management team regarding lending assets to Alameda Research. The risk management team had expressed concerns about the high risk associated with lending assets to Alameda, but Prince allegedly dismissed these concerns. The team had specifically mentioned the risk of potential liquidation if the FTX Token used as collateral needed to be sold.
The filing revealed that in August 2021, the risk management team informed Prince about Alameda's balance sheet, which consisted primarily of approximately 7 billion unlocked FTX Tokens, totaling 11 billion when including locked tokens. This raised alarms at BlockFi, but Prince dismissed the concerns and urged the team to accommodate Alameda as a borrower. He instructed them to use FTX Tokens and other collateral types instead of GBTC shares.
After January 2022, the risk management team stopped issuing memos about the risks associated with lending to Alameda directly to Prince, and discussions were moved to offline meetings and Slack. The CEO occasionally acknowledged the risk. At the time of BlockFi' s bankruptcy declaration, the company had around $1.2 billion in assets tied to FTX and Alameda.
BlockFi stated that it had significant risks related to FTX and its affiliated entities when it filed for Chapter 11 bankruptcy. In July 2022, FTX US obtained a $400 million line of credit from BlockFi, further strengthening the financial ties between the two companies. BlockFi recalled the loan from Alameda in June 2022, and Alameda repaid its outstanding balance almost to zero. However, BlockFi chose to continue its relationship with Alameda by sub-borrowing nearly $900 million, mostly secured by FTX Tokens.
The committee's filing suggests that Alameda/FTX's downfall may have played a role in BlockFi's demise, but the company's own business practices and decisions prior to Alameda/FTX's bankruptcy filing were the root causes. BlockFi disagreed with the report and stated that it had been taken out of context and contained errors, while failing to provide the promised objective analysis, according to a company spokesperson. BlockFi had cited the risks associated with FTX in its reasoning for filing for bankruptcy, as the price of FTT tokens had significantly decline d, leading to Liquidity issues after the Chapter 11 filing.
Please note that the information provided is based on the filed court documents and statements made by the involved parties, and it may be subject to further legal proceedings and developments.
