Crypto Lender BlockFi Accused of Misleading Investors and Betting on FTX Despite Flaws
- The Committee of Unsecured Creditors claims that BlockFi misled investors and took unnecessary risks by investing in FTX, even after seeing a secret balance sheet that exposed flaws in Sam Bankman-Fried’s empire.
- The creditors argue that BlockFi should be liquidated immediately to avoid further legal delays and potential future litigation risks for executives.
- A court filing reveals that mismanagement and overexposure to FTX led to significant losses for BlockFi and its creditors.
- CoinDesk previously reported on FTX’s toxic internal arrangements, which ultimately led to the exchange filing for bankruptcy.
- Despite this revelation, BlockFi continued to invest in FTX, leading to its collapse a few weeks later.
Failure to Conduct Due Diligence and Misleading Investors
- BlockFi failed to complete basic due diligence on Sam Bankman-Fried’s empire and offered special treatment to FTX and Alameda, disregarding risk management principles.
- Internal warnings about the risks were ignored or overruled by BlockFi CEO Zac Prince.
- BlockFi also misled investors about its risk management strategies, asset concentration, and customer withdrawals.
Creditors Push for Liquidation and Accuse BlockFi Management of Delay Tactics
- Creditors are demanding immediate liquidation of BlockFi and accuse management of delaying proceedings to negotiate a release from personal liability.
- They argue that BlockFi’s investment in FTX, including $900 million re-lent to Alameda, may be irretrievable.
BlockFi Disagrees with Committee’s Report and Denies Misusing Client Funds
- BlockFi stated that it disagrees with the Committee’s report and claims that none of its management misused client funds or directed transactions without understanding the risks.
- The company argues that it had no knowledge of FTX’s true nature and believes that legal claims against them are not justified from a cost/benefit perspective.
Hot Take:
Despite warnings and a clear view of the risks involved, BlockFi continued to invest in FTX, leading to significant losses for the company and its creditors. This raises concerns about the due diligence practices and risk management strategies employed by BlockFi. The creditors’ push for immediate liquidation highlights the severity of the situation and the potential irretrievability of the funds invested. BlockFi’s denial of any wrongdoing and disagreement with the Committee’s report further emphasizes the need for a thorough investigation into the company’s actions.
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