During the eighth day of Sam Bankman-Fried’s trial, which pertained to the downfall of FTX (a cryptocurrency exchange) and BlockFi (a lending company), the CEO of BlockFi, Zac Prince, testified as a witness. He disclosed crucial details about the loan contract between BlockFi and Alameda Research, as well as the financial condition of BlockFi.
Report on the trial of former FTX CEO Sam Bankman-Fried:
- Day 1&2: Opening statements by the prosecutor and defense attorney
- Day 3: Crucial witnesses Adam Yetitia, Matt Huang
- Day 4: Former Chief Technology Officer of FTX, Gary Wang
- Day 5&6: Former CEO of Alameda Research, Caroline Ellison
- Day 7: Caroline Ellison and former Alameda Research programmer Christian Drappi
BlockFi, a cryptocurrency lending company, experienced a collapse in November 2022, just a few weeks after FTX faced liquidity issues and went through a similar collapse. Mr. Zac Prince explained that BlockFi had taken careful measures to verify customer information before lending, including extensive loan documentation spanning 30-40 pages and typically offering loans with terms. The total value of BlockFi’s loans in 2022 was estimated to be between 5 and 10 billion USD.
According to the court records, Alameda Research started borrowing money from BlockFi in Q2/2021 with a value of 10 million USD. Subsequently, Mr. Sam Bankman-Fried met Mr. Zac Prince privately to expand their cooperation, and from May 2021 to May 2022, the amount BlockFi lent to Alameda increased to 1.1 billion USD.
An important point in the litigation is that after the collapse of LUNA-UST in May 2022, BlockFi was heavily impacted when the Three Arrows Capital fund couldn’t repay its debt. In addition, other lending platforms like Celsius and Voyager also went bankrupt in July. Therefore, BlockFi had to consider selling the company to FTX to ensure financial stability and not impact its customers. This agreement began with FTX injecting 400 million USD into BlockFi to support the company.
During this time, BlockFi continued to lend Alameda 850 million USD from May to November. Mr. Zac Prince stated that if BlockFi had known that Alameda had borrowed money from FTX, they would not have approved new loans for Alameda.
Finally, in early November, when FTX began showing signs of trouble, BlockFi requested that Alameda return a portion of the borrowed money, with a value of 200 million USD. Alameda Research used Grayscale’s GBTC shares and shares of Robinhood to secure the remaining funds.
This event has raised numerous questions about risk management and financial relationships among companies in the cryptocurrency industry. Additionally, the court will summon other witnesses in the upcoming trial to clarify further information. Former FTX Chief Technical Officer Nishad Singh and FTX manager closely associated with Sam Bankman-Fried, Ramnik Aurora, will be the witnesses to face the court in the following week.