BlockFi’s fall was precipitated because its company leaders ignored warnings about potential risks related to FTX and Alameda Research, as revealed in documents filed on July 14.

BlockFi made the decision to halt withdrawals on November 10, 2022, citing the collapse of FTX and Alameda Research as the cause. The company said it couldn’t do business as usual due to a “lack of clarity” around those companies and later filed for bankruptcy.

However, the most recent filing, containing the results of an ongoing investigation by the Official Committee on Unsecured Creditors, suggests that BlockFi’s exposure to FTX was not incidental to its failure. Instead, the committee’s findings suggest that the company’s collapse was the result of company management’s negligence on the issue.

In one section of the presentation, the committee said:

“It may be true that the fall of Alameda/FTX triggered the fall of BlockFi, but BlockFi’s demise was based on business practices and decisions that long preceded Alameda/FTX’s bankruptcy filing.”

The creditors’ committee specifically alleged that BlockFi’s senior management rescinded or refused to follow warnings against lending large amounts to Alameda Research secured by FTX’s FTT token. BlockFi CEO Zac Prince reportedly told BlockFi team members to “get comfortable” with this use of funds.

More broadly, the latest filing described BlockFi’s activities as a “flawed business model,” noting that the company took “unreasonable” risks that led to “cataclysmic losses.” The filing disputed previous claims that BlockFi debtors are in a better position than FTX debtors. He also pointed out that BlockFi was not a regulated lending institution even though it presented itself as a regulated and insured small bank.

BlockFi bankruptcy proceedings continue

Bankruptcy proceedings in January 2023 revealed that BlockFi had $1.2 billion in exposure to both FTX and Alameda Research, more than the company had previously reported.

FTX and other companies also voiced opposition to BlockFi’s bankruptcy plans in court filings in July, potentially delaying the company’s action on that plan.

BlockFi is still in bankruptcy proceedings. Early filings suggested the company owes between $1 billion and $10 billion to more than 100,000 creditors.

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