NEW YORK — BlockFi CEO Zac Prince resumed his testimony against former counterparty Sam Bankman-Fried on Friday, detailing to the court how his lending firm was forced to declare bankruptcy because of its involvement in FTX and Alameda Research.
BlockFi started lending money to Alameda Research around the end of 2020 or early 2021, Prince said, in what he recalled were “very robust loan agreements.” After an initial round of loans, Alameda requested more money from the lender in the second quarter of 2021 after which BlockFi let the hedge fund borrow “significantly” more money following a conversation with Bankman-Fried.
As of May 2022, BlockFi’s loans to Alameda exceeded $1 billion, Prince said. But BlockFi started asking for money back because BlockFi had suffered losses from the collapse of the Terra Luna crypto ecosystem.
Alameda Research repaid all the money, after which BlockFi made new loans to the company worth $850 million.
When asked about how BlockFi made sure that Alameda would at one point be able to pay back its loans, Prince said that it received multiple quarterly balance sheets from the hedge fund that showed that it had a large sum of liquid assets and was solvent. Alameda also posted collateral, consisting mostly of FTX’s native token FTT and other cryptocurrencies.
Before collapsing in November 2022, Alameda had about $800 million to $850 million of outstanding loans from BlockFi, Prince said, and $650 million remained after Alameda’s demise. Alameda even posted additional collateral in the form of FTT as well as Robinhood and shares of a Grayscale trust, Prince recalled.
Besides being a lender to Alameda, BlockFi was also a customer of FTX. It had Alameda collateral on FTX and also traded customer funds worth around $350 million on the former exchange.
In total, Prince recalled, BlockFi lost “a little over a billion dollars” as a result of its involvement with FTX and Alameda Research, which was enough to force it to declare bankruptcy less than three weeks after the collapse of Bankman-Fried’s empire.
The cross
Mark Cohen, Bankman-Fried’s lead attorney, asked Prince to walk through BlockFi’s master loan agreement, credit facility documents and other reports the company generated as part of its business with Alameda.
At one point, Cohen asked Prince to clarify BlockFi’s due diligence process, asking for the names of any attorneys who may have been involved. Prince said BlockFi’s general counsel, three deputies and their teams all may have been involved in reviewing Alameda’s paperwork.
Near the end of Friday’s session, Assistant U.S. Attorney Nicholas Roos asked Prince to explain why BlockFi filed for bankruptcy when it did, leading to Prince saying he did not think it would have filed in November 2022 if its funds on FTX and loans to Alameda hadn’t been “impaired.”
It may still have had to file for bankruptcy later, he later clarified.
Fine Print
Friday was Prince’s second day testifying. He had taken the stand for a mere eight minutes Thursday, following former Alameda Research employee Christian Drappi and former Alameda CEO Caroline Ellison, both of whom testified about Alameda’s role in taking FTX customer funds. During his Thursday appearance, Prince explained how crypto lenders work.
Notably, he testified that BlockFi’s customers were well aware that the company lent customer funds out to other parties to generate interest. This information was in BlockFi’s terms of service, and Prince said he advertised it in other ways, like discussing it on podcasts – seemingly drawing a stark contrast to FTX.
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Prosecutors have spent the first two weeks of Bankman-Fried’s trial asking former FTX executives and employees whether the exchange’s customers were aware that their funds were being loaned to Alameda.
They were not, four different witnesses said.
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