In a recent filing with the United States Bankruptcy Court, it has been alleged that Zac Prince, the CEO of cryptocurrency lending firm BlockFi, ignored recommendations from the company’s risk management team regarding lending assets to Alameda Research.
The risk management team had reportedly raised concerns about the high risks associated with providing loans to Alameda, particularly if the collateral in the form of FTX Tokens (FTT) needed to be liquidated.
According to the filing, as early as August 2021, the risk management team informed BlockFi that Alameda’s balance sheet consisted mostly of unlocked FTT tokens, raising alarms within the company. However, Prince purportedly dismissed these concerns, encouraging the risk team to become comfortable with Alameda’s borrowing habits.
The filing further reveals that after January 2022, the risk management team ceased issuing memos to Prince and instead held offline meetings and discussions on Slack. During this period, the CEO occasionally acknowledged the exposure to Alameda. At the time of BlockFi’s bankruptcy filing, the firm had approximately $1.2 billion tied to FTX and Alameda.
BlockFi’s bankruptcy filing in November 2022 acknowledged its substantial exposure to FTX and associated entities. Notably, FTX US received a $400 million credit line from BlockFi in July 2022, deepening their financial ties amid a challenging cryptocurrency market.
The report states that BlockFi recalled its loans from Alameda in June 2022, and the outstanding balance was nearly repaid to zero. However, instead of severing ties, BlockFi proceeded to lend Alameda nearly $900 million between July and September 2022, with the loans primarily collateralized by FTT.
Also Read: FTX, 3AC, and SEC Oppose BlockFi’s Bankruptcy Proposal
BlockFi’s bankruptcy filing explicitly cited exposure to FTX as one of the reasons for its financial distress. The collateralized loan practices of FTX, particularly involving FTT tokens, reportedly led to significant losses for various firms as the token’s price plummeted amid the Chapter 11 filing and liquidity issues.
