In the trial of Sam Bankman-Fried in New York City, Zac Prince, the former CEO of the now-defunct cryptocurrency lending company BlockFi, provided testimony. Prince disclosed the size of the loan that BlockFi extended to Alameda Research, the exchange's sister trading arm, and his knowledge of Alameda's balance sheet as a significant creditor. According to his testimony, BlockFi initially lent $50 million to Alameda, which grew to $1.1 billion between May 2021 and May 2022. In total, BlockFi provided loans amounting to "five to ten billion dollars."
BlockFi encountered significant challenges when the LUNA ecosystem collapsed, Three Arrows Capital defaulted on its commitments, and other industry players like Celsius and Voyager suspended their operations. BlockFi sought a $400 million credit line from FTX and explored the possibility of fully acquiring the exchange. Despite the turmoil, BlockFi extended another $850 million in loans to Alameda between July and November 2022, unaware of Alameda's existing loans from FTX, which might have rendered Alameda insolvent.
Zac Prince emphasized that he would not have lent to Alameda if he had known about the loans from FTX and the utilization of FTX customer funds by Alameda. Furthermore, Prince expressed concerns regarding the loan to Sam Bankman-Fried, which raised issues when FTT prices experienced a significant drop in November, and BlockFi's attempts to recall the loan were only partially successful.
BlockFi also held $350 million in funds directly on the FTX exchange. Prince contended that both Alameda and FTX bore responsibility for BlockFi's subsequent bankruptcy. Notably, creditors argue that Prince was aware of Alameda's deteriorating balance sheet, primarily composed of illiquid FTT tokens, as early as 2021. BlockFi's loans to Alameda were often collateralized by these tokens, raising concerns about the loans.
In a court filing, BlockFi's Unsecured Creditors Committee revealed that Prince had downplayed these concerns, encouraging risk teams to accommodate Alameda as a significant borrower, similar in size to Three Arrows, and using various collateral types, including FTT, rather than GBTC (Grayscale's Bitcoin Trust) and other assets. Prince asserted that loans provided after July 2022 were backed by GBTC and Robinhood stock.
