Zac Prince, the CEO of BlockFi, allegedly ignored recommendations from the company’s risk management team regarding lending assets to Alameda Research. According to a filing with the United States Bankruptcy Court for the District of New Jersey by the unsecured creditors’ committee, the risk management team reported on the “high risks” associated with lending assets to Alameda. Despite their concerns, Prince disregarded them and proceeded with lending Alameda $217 million by August 2021.
The risk management team stated that Alameda’s balance sheet was largely comprised of unlocked FTX Tokens (FTT), with 7 billion tokens unlocked and 11 billion tokens in total, including locked tokens based on unaudited financials. These findings raised concerns at BlockFi, but Prince dismissed them and urged the team to “get comfortable” with Alameda’s borrowing size.
After January 2022, the risk management team stopped issuing memos to Prince on the potential risks of lending to Alameda. Instead, discussions moved to offline meetings and Slack conversations, where the CEO occasionally acknowledged the exposure. At the time of BlockFi’s Chapter 11 filing in November 2022, the company had approximately $1.2 billion in assets tied to FTX and Alameda.
Despite recalling its loans from Alameda in June 2022 and Alameda repaying its outstanding balance, BlockFi decided to re-lend almost $900 million to Alameda between July and September 2022, primarily collateralized by FTT tokens.
The filing suggests that while Alameda/FTX’s downfall may have contributed to BlockFi’s collapse, the demise of the firm was rooted in its business practices and decisions prior to Alameda/FTX’s bankruptcy filing.
In response to the report, a BlockFi spokesperson disagreed and stated that the firm believed the report cherry-picked statements out of context and made errors in other matters. BlockFi directly cited exposure to FTX as one of the reasons for its bankruptcy filing. The practice of collateralized loans based on FTT tokens by FTX resulted in many firms facing significant losses as the price of the token plummeted.
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