BlockFi CEO ignored dangers from FTX and Alameda publicity, contributing to break down: courtroom submitting

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Zac Prince, the CEO of bankrupt cryptocurrency lending agency BlockFi, allegedly disregarded suggestions from the corporate’s threat administration workforce over lending belongings to Alameda Analysis. 

In accordance with a July 14 submitting with United States Chapter Court docket for the District of New Jersey by the unsecured collectors’ committee, BlockFi’s threat administration workforce reported on the “excessive dangers” related to lending belongings to Alameda. Prince allegedly dismissed considerations from the workforce on BlockFi lending Alameda $217 million by August 2021. The workforce advised there may very well be dangers ought to the FTX Tokens (FTT) used to safe the loans must be liquidated.

“As early as August 2021, BlockFi’s threat administration workforce was suggested that Alameda’s stability sheet was largely comprised of ‘~7bb unlocked FTT, and 11bb whole together with locked tokens primarily based on unaudited financials,’” mentioned the submitting. “This set off alarms at BlockFi. Mr. Prince dismissed the considerations, urging the danger workforce to study to ‘get snug [with Alameda] being a 3 arrows measurement borrower, simply with FTT and different collateral sorts as a substitute of GBTC shares.’”

After January 2022, the danger administration workforce stopped issuing memos to Prince on the potential dangers of giving loans to Alameda, transferring discussions to “offline conferences and Slack”, the place the CEO sometimes acknowledged the publicity. BlockFi had roughly $1.2 billion in assets tied to FTX and Alameda when the agency declared chapter.

Associated: BlockFi plans to file assets and liabilities for bankruptcy case on Jan. 11

On the time of its Chapter 11 submitting in November 2022, BlockFi mentioned it had “important publicity” to FTX and its related entities. FTX US received a $400-million credit line from BlockFi in July 2022, furthering monetary ties between the 2 companies amid a crypto winter.

“BlockFi recalled its loans from Alameda [in June 2022], and Alameda repaid its excellent stability to virtually zero,” mentioned the report. “BlockFi then might have walked away from the connection. As an alternative, it re-lent Alameda practically $900 million (between July and September 2022), virtually completely collateralized by FTT.”

The submitting added:

“It could be true that Alameda/FTX’s downfall triggered BlockFi’s downfall, however BlockFi’s demise was rooted in enterprise practices and choices nicely previous Alameda/FTX’s chapter submitting.”

In an announcement to Cointelegraph, a BlockFi spokesperson mentioned the agency disagreed with the report. The agency alleged in a separate courtroom submitting the committee behind the report “cherry-picks statements out of context, errs on different issues, and doesn’t ship the target evaluation promised.”

BlockFi immediately cited exposure to FTX within the causes for its chapter submitting. FTX’s observe of collateralized loans primarily based on FTT tokens left many companies holding the bag after the value of the token dropped from greater than $25 to below $2 amid the Chapter 11 submitting and reported liquidity points.

Journal: Can you trust crypto exchanges after the collapse of FTX?