BlockFi’s downfall was precipitated by its company’s executives ignoring warnings about potential risks from FTX and Alameda Research, documents filed on July 14th.
BlockFi made the decision to halt withdrawals on November 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 these businesses and later filed for bankruptcy.
However, the latest filing, which contains the results of a still ongoing investigation by the Official Unsecured Creditors Committee, 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 company management’s negligence around the issue.
In one section of the filing, the committee said:
“It may be true that the fall of Alameda/FTX triggered the fall of BlockFi, but BlockFi’s demise was rooted in business practices and decisions long before Alameda/FTX filed for bankruptcy.”
The creditors’ committee specifically alleged that BlockFi’s senior management overruled or refused to heed warnings against lending large amounts to Alameda Research secured by FTX’s FTT token. BlockFi CEO Zac Prince reportedly told BlockFi team members to “get comfortable” with this use of funds.
More generally, the latest filing describes BlockFi’s business as a “flawed business model”, noting that the company took “unreasonable” risks that led to a “cataclysmic loss”. The filing challenged earlier claims that BlockFi debtors are in a better position than FTX debtors. He also noted that BlockFi was not a regulated lending institution despite presenting itself as similar to smaller regulated and insured banks.
BlockFi Bankruptcy Proceedings Continue
Bankruptcy proceedings in January 2023 revealed that BlockFi had exposure to both FTX and Alameda Research for $1.2 billion, more than the company had previously reported.
FTX and other companies also voiced their opposition to BlockFi’s bankruptcy plans in court filings in July, potentially delaying the company from acting on the plan.
BlockFi remains in bankruptcy proceedings. Early filings suggested the company owed between $1 billion and $10 billion to more than 100,000 creditors.
BlockFi CEO disregarded warnings about FTX before the collapse, according to court documents he first appeared on CryptoSlate.