BlockFi Management Repeatedly Ignored Risk Warnings, Bankruptcy Filing Claims

Updated: 16 July 2023

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BlockFi senior management ignored repeated warnings from its risk management team about lending to Alameda Research, a sister company of the bankrupt FTX, bankruptcy court filings allege.

Despite the warnings, it still lent $217 million to Alameda by August 2021, the filing states. The risk advisers had specifically warned about the risks if FTX tokens used as collateral had to be sold off, adds the report, compiled by a committee that represents BlockFi’s unsecured creditors.

BlockFi’s senior management staunchly refused and overruled “repeated warnings by the Company’s credit risk department not to loan enormous sums to Alameda, collateralized by FTT,“ it states.

As early as August 2021, the company’s management team was informed that Alameda had a significant amount of unlocked FTT tokens on its balance sheet, which raised alarms within the company, the filing says. Nevertheless, BlockFi dismissed the concerns and encouraged the team to move ahead with the loan to Alameda, according to the allegations.

BlockFi Bankruptcy Reveals CEO Ignored Warnings

From January 2022 onwards, the risk management team stopped sending CEO Zac Prince written memos about the risks, and instead shifted to having offline meetings and using Slack for discussions, the report says.

In these conversations, the CEO occasionally acknowledged the potential dangers, it adds. BlockFi’s bankruptcy filing later unveiled that the company had approximately $1.2 billion intertwined with FTX and Alameda.

In July 2022, FTX US received a substantial $400 million credit line from BlockFi, further strengthening the financial ties between the two companies during a period known as the crypto winter.

According to the findings, the company took back its loans from Alameda in June 2022, and Alameda promptly re-paid a significant portion of the remaining balance.

But instead of cutting off the relationship with Alameda, BlockFi provided it with another round of lending, the report says. BlockFi extended nearly $900 million in loans to Alameda between July and September 2022, the filing says These loans were primarily secured by FTT tokens as collateral.

BlockFi Downfall Rooted in Its Own Business Practices

But the report adds that BlockFi’s demise was primarily a result of its own business practices and decisions made prior to Alameda/FTX’s bankruptcy filing.

In response to the filing, BlockFi disputed the report and disagreed with its findings. It claimed that the report cherry-picked statements out of context, made errors on other matters, and failed to provide the promised objective analysis.

It’s estimated the company owes creditors between $1 billion and $10 billion.

The news that has come out of the company’s bankruptcy proceedings has added to negative sentiment towards the crypto industry with Zero Shorts tweeting in June that there is “nothing legit in crypto”

There's literally nothing legit in Crypto. From the #BlockFi exchange's bankruptcy proceedings. IT'S ALL FRAUD. pic.twitter.com/KptxkLCYpu

— Zero Shorts (@zeroshorts) June 28, 2023