Zac Prince, the CEO of cryptocurrency lending firm BlockFi, is facing allegations of ignoring warnings from the company’s risk management team regarding lending assets to Alameda Research.
The unsecured creditors’ committee filed a document on July 14 with the United States Bankruptcy Court for the District of New Jersey, stating that BlockFi’s risk management team had raised concerns about the high risks associated with lending assets to Alameda.
Despite these concerns, Prince allegedly dismissed the team’s recommendations and proceeded to lend Alameda $217 million by August 2021.
The risk management team had warned about potential risks if the loans secured by the FTX Token (FTT) needed to be liquidated.
The filing revealed that as early as August 2021, BlockFi’s risk management team was informed that a significant portion of Alameda’s balance sheet consisted of unlocked FTT tokens.
This information alarmed the team, but Prince disregarded their concerns and encouraged them to become comfortable with Alameda’s borrowing size.
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Discussions between Prince and the risk management team regarding the risks associated with lending to Alameda shifted to offline meetings and Slack after January 2022.
BlockFi had approximately $1.2 billion tied to FTX and Alameda when it filed for bankruptcy.
In November 2022, when BlockFi filed for Chapter 11 bankruptcy, it acknowledged its significant exposure to FTX and its associated entities.
In July 2022, FTX US received a $400 million credit line from BlockFi, further deepening the financial ties between the two firms during a period referred to as the crypto winter.
The report stated that BlockFi recalled its loans from Alameda in June 2022, and Alameda repaid most of its outstanding balance.
However, instead of severing ties with Alameda, BlockFi decided to lend them nearly $900 million between July and September 2022, with the loans primarily collateralized by FTT tokens.
While it is acknowledged that Alameda/FTX’s downfall might have contributed to BlockFi’s demise, the filing emphasized that BlockFi’s problems were rooted in its own business practices and decisions that predated Alameda/FTX’s bankruptcy filing.
BlockFi issued a statement to Cointelegraph, stating its disagreement with the report.
The firm also filed a separate court document claiming that the committee behind the report cherry-picked statements out of context and failed to provide the promised objective analysis.
BlockFi directly cited its 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 losses for numerous firms when the token’s price plummeted from over $25 to under $2 during the Chapter 11 filing and reported liquidity issues.
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