BlockFi CEO Zac Prince resumed his testimony against former counterparty Sam Bankman-Fried, shedding light on the factors that led to his lending firm declaring bankruptcy due to its connections with FTX and Alameda Research.
Lending Money to Alameda Research
According to Prince, BlockFi began lending money to Alameda Research in late 2020 or early 2021 under what he described as “very robust loan agreements.” After the initial loans, Alameda requested additional funding in the second quarter of 2021, which BlockFi accommodated after a conversation with Bankman-Fried. By May 2022, BlockFi’s loans to Alameda had exceeded $1 billion.
However, BlockFi’s decision to request repayment was triggered by losses stemming from the collapse of the Terra Luna crypto ecosystem. Alameda Research repaid the borrowed funds, after which BlockFi extended new loans to the company, amounting to $850 million.
Due Diligence and Collateral
Prince emphasized that BlockFi had measures in place to ensure Alameda’s ability to repay the loans. BlockFi received quarterly balance sheets from Alameda showing significant liquid assets and solvency. Alameda also provided collateral, primarily consisting of FTX’s native token, FTT, and other cryptocurrencies.
Before Alameda’s collapse in November 2022, BlockFi held approximately $800 million to $850 million in outstanding loans from the hedge fund, which decreased to $650 million after Alameda’s demise. Additional collateral, including FTT, Robinhood shares, and a Grayscale trust, was posted by Alameda.
BlockFi’s Losses and Bankruptcy
BlockFi’s involvement with FTX and Alameda resulted in significant losses, with Prince stating that BlockFi lost “a little over a billion dollars.” This financial setback forced the company to file for bankruptcy less than three weeks after the collapse of Bankman-Fried’s empire.
In his testimony, Prince explained that he did not believe BlockFi would have filed for bankruptcy in November 2022 if its funds on FTX and loans to Alameda had not been “impaired.” However, he later clarified that bankruptcy might have been necessary at a later date.
Due Diligence and Legal Involvement
During his testimony, Prince also discussed the due diligence process, indicating that BlockFi’s general counsel and their teams were involved in reviewing Alameda’s documentation. Questions arose about the company’s master loan agreement and credit facility documents.
Assistant U.S. Attorney Nicholas Roos asked Prince to explain the timing of BlockFi’s bankruptcy filing. Prince shared that the impairment of funds and loans played a pivotal role in the decision. It was clarified that bankruptcy may still have been inevitable, but the timing was influenced by these financial challenges.