BlockFi CEO neglected warnings about FTX prior to collapse, court docs say
CEO Zac Prince told employees to "get comfortable" with BlockFi's use of funds.
BlockFi’s downfall was precipitated by its company leaders neglecting warnings about potential risks tied to FTX and Alameda Research, as revealed in documents filed on July 14.
BlockFi made the decision to halt withdrawals on Nov. 10, 2022, citing the collapse of FTX and Alameda Research as the cause. The company said it could not operate as usual due to a “lack of clarity” around those firms and later filed for bankruptcy.
However, the latest filing, which contains the results of a still-ongoing investigation from the Official Committee of Unsecured Creditors, suggests that BlockFi’s exposure to FTX was not incidental to its failure. Instead, the committee’s findings suggest the company’s collapse was the result of neglect among company management around the issue.
In one section of the filing, the committee said:
“It may be true that Alameda/FTX’s downfall triggered BlockFi’s downfall, but BlockFi’s demise was rooted in business practices and decisions well preceding Alameda/FTX’s bankruptcy filing.”
The creditors’ committee specifically alleged that senior BlockFi management overruled or refused to follow warnings against loaning large amounts to Alameda Research collateralized by FTX’s FTT token. BlockFi CEO Zac Prince supposedly told BlockFi team members to “get comfortable” with this use of funds.
More broadly, the latest filing described BlockFi’s activities as a “flawed business model,” noting that the company took on “unreasonable” risks that led to “cataclysmic loss.” The filing challenged earlier claims that BlockFi debtors are in a better position than FTX debtors. It also noted that BlockFi was not a regulated lending institution despite the fact that it presented itself as similar to regulated and insured small banks.
BlockFi bankruptcy proceedings continue
Bankruptcy proceedings in January 2023 revealed that BlockFi had exposure to both FTX and Alameda Research amounting to $1.2 billion, an amount that was larger than the company had previously reported.
FTX and other companies also expressed opposition to BlockFi’s bankruptcy plans in court filings in July, potentially delaying the company from acting on that plan.
BlockFi remains in bankruptcy proceedings. Early filings suggested that the company owes between $1 billion and $10 billion to over 100,000 creditors.