BlockFi CEO’s Disregard for Risks Contributed to Bankruptcy

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The BlockFi CEO reportedly disregarded warnings from the company’s risk management team about the risks of lending assets to Alameda Research, which played a role in the firm’s collapse.

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A court filing revealed that BlockFi’s risk management team expressed concerns about the high risks associated with lending assets to Alameda Research.

Despite these warnings, CEO Zac Prince allegedly approved a $217 million loan to Alameda by August 2021. The team had raised concerns about potential risks if the collateral, FTX Token (FTT), needed to be liquidated.

In August 2021, a filing revealed that BlockFi’s risk management team was informed about Alameda’s balance sheet, which mostly comprised unlocked FTT tokens, causing concern within the company.

However, Prince reportedly disregarded these concerns and urged the team to become more at ease with Alameda’s borrowing size. When BlockFi filed for bankruptcy, it had around $1.2 billion in assets linked to FTX and Alameda.

The court filing disclosed that discussions about the risks of lending to Alameda shifted to offline meetings and Slack after January 2022. The CEO occasionally acknowledged the exposure.

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BlockFi recalled its loans from Alameda in June 2022, but later re-lent nearly $900 million to Alameda between July and September 2022, mainly using FTT as collateral.

BlockFi cited exposure to FTX as a factor in its bankruptcy filing. In response to the court filing, a BlockFi spokesperson disagreed with the report, arguing that it selectively picked statements and lacked objective analysis.

Important: Please note that this article is only meant to provide information and should not be taken as legal, tax, investment, financial, or any other type of advice.

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