The recent uncovering of a court report has cast shadows of doubt over BlockFi Inc, one of the major players in the crypto lending sphere. BlockFi has been accused of ignoring its internal risk management team’s warnings concerning substantial loans to FTX-linked Alameda Research. The loans in question were collateralized with digital tokens from FTX. The report’s salacious details were brought to light recently in filings presented by unsecured creditors of BlockFi.
It is alleged that BlockFi’s founder and CEO, Zac Prince, and other upper-level officials adopted a laissez-faire attitude regarding risks associated with lending to Alameda. This transpired even when the very existence of platform became mired in fraud allegations and it subsequently collapsed. A submission to the United States Bankruptcy Court in July indicated that BlockFi’s risk management team had voiced concerns about the substantial risk factors associated with lending to Alameda—advices that unfortunately fell on deaf ears.
Interestingly, it was uncovered that BlockFi had access to balance sheet which revealed the potential flaws and risks inherent in Bankman-Fried’s empire. Despite having access to this crucial information, BlockFi continued to make substantial investments in FTX. This raised serious questions about BlockFi’s commitment to responsible and accountable fintech practices.
The total amount of investment by BlockFi in FTX and Alameda was a staggering $1.2 billion by the time BlockFi had to declare bankruptcy. This risky venture, according to the report, was largely on account of the CEO overlooking concerns voiced by his risk management team.
FTX’s own fall from grace was triggered when it was revealed that Alameda’s balance sheet was significantly backed by its own FTT token. This revelation had a profound effect on FTX’s credibility, leading to a quick demise of the platform. However, even this cascade of ill news failed to deter BlockFi’s willing to invest in a clearly risky venture such as FTX, according to the unsecured creditors of BlockFi.
However, BlockFi has publically disagreed with the findings of the committee’s report. Claiming the report took statements out of context and contained factual errors, BlockFi’s spokesperson maintained that the company had been caught unaware of FTX and Alameda’s true nature and risks.
While the report certainly points towards grave mismanagement and risk-taking behaviour at BlockFi, the fact remains that these are, after all, allegations. It remains to be seen how these events will shape the future of BlockFi and the Crytpo lending industry as a whole.
Source: Cryptonews
