BlockFi’s Collapse Tied to Ignored Risks with FTX and Alameda Research

A preliminary report titled “Why Did BlockFi Fail?” submitted to the United States Bankruptcy Court for the District of New Jersey on July 14, 2023, has shed light on the reasons behind the failure of BlockFi, a prominent crypto lending firm. The report was filed by the Official Committee of Unsecured Creditors and involves several entities associated with BlockFi.

According to the report, BlockFi’s failure can be attributed to fundamentally flawed business models, unreasonable risk-taking, and ignored concerns from the management team. The document also provides a timeline of events leading up to BlockFi’s collapse and discusses the key individuals and entities involved in the case.

Zac Prince, the CEO of BlockFi, allegedly disregarded recommendations from the company’s risk management team over lending assets to Alameda Research. The risk management team had reported on the “high risks” associated with lending assets to Alameda, but Prince allegedly dismissed these concerns. By August 2021, BlockFi had lent Alameda $217 million, despite the risk management team’s warnings about potential risks if the FTX Token (FTT) used to secure the loans needed to be liquidated.

The report also reveals that BlockFi had roughly $1.2 billion in assets tied to FTX and Alameda Research when the firm filed for bankruptcy in November 2022. At the time of its Chapter 11 filing, BlockFi admitted it had “significant exposure” to FTX and its associated entities. FTX US had received a $400 million credit line from BlockFi in July 2022, furthering financial ties between the two firms amid a crypto winter.

The report suggests that while Alameda/FTX’s downfall may have triggered BlockFi’s downfall, BlockFi’s demise was rooted in business practices and decisions well preceding Alameda/FTX’s bankruptcy filing.

In response to the report, a BlockFi spokesperson said the firm disagreed with the report, alleging that the committee behind the report “cherry-picks statements out of context, errs on other matters, and does not deliver the objective analysis promised.”

The document also delves into the promises made to customers, the company’s corporate guidelines, the failures of oversight functions, and investment failures. The report’s findings highlight the importance of robust risk management and the potential consequences of ignoring such systems in the rapidly evolving crypto industry.

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Bankman-Fried’s Bail Conditions Extended

As a new development in the ongoing court action involving crypto millionaire Sam Bankman-Fried, his legal team has asked for a third extension on the execution of his updated bail terms. This information was revealed in a new legal filing. The petition was submitted to the court on April 19 in a file that was made in the Southern District of New York. The attorneys, Mark Cohen and Christian Everdell, have indicated that they have effectively enforced “all of the bail conditions set forth in the Order,” with the exception of one of the restrictions, which is monitoring the use of Bankman-Fried’s parents’ mobile phones. The attorneys noted difficulty in installing the requisite monitoring software, which is designed to snap a picture of the user “every five minutes.” They also highlighted issues in obtaining the appropriate user permissions.

Concerns over Bankman-Fried’s access to electronic devices have been voiced on previous occasions, thus this is not the first time the issue is being brought up. Prior to this, Judge Kaplan issued a cautionary statement stating that there was “probable cause” to assume that Bankman-Fried was engaged in an effort to tamper with a witness. On March 28, it was reported that Bankman-Fried’s parents had agreed to restrict their son’s access to their electronic devices and signed affidavits promising not to bring forbidden electronic equipment into their house. Additionally, it was stated that Bankman-Fried had limited his access to their gadgets.

Because of these concerns, Kaplan suggested on March 4 that Bankman-Fried be banned from using any video game platforms or devices, including cellphones, tablets, PCs, and anything else that enables chat and voice contact. According to the plan, Bankman-Fried’s only option for communication should be a “flip phone or other non-smartphone with either no internet capabilities or internet capabilities disabled.”

The continuation of the bail terms imposed on Bankman-Fried draws attention to the continuing judicial struggle that surrounds the billionaire’s suspected participation in an effort to tamper with a witness. While his legal team tries to install the required monitoring software on his parents’ mobile phones, it is now unknown whether or not Bankman-Fried will be able to abide by the court’s updated bail terms. This is the case even though Bankman-Fried is already out on bond.


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