Unchained - SBF Trial, Day 8: Former BlockFi CEO Adds Credibility to Fraud Charges

Episode Date: October 13, 2023

On the eighth day of the SBF trial, former BlockFi CEO Zac Prince took the stand, serving as a strong witness for the defense, while offering a detailed look into how Alameda Research's borrowing from FTX differed from traditional crypto lending, and the impact of FTX’s and Alameda’s collapse on BlockFi, which subsequently filed for bankruptcy. The defense team tried to pin BlockFi’s loans to Alameda on BlockFi executives ignoring advice from its own credit team, but Prince twice corrected defense attorney Mark Cohen that, for the document in question, the executives did follow the advice of their credit team. The defense also tried to raise the notion that BlockFi would have declared bankruptcy no matter what had happened with FTX and Alameda, but Prince also held his ground that the collapse of SBF’s empire resulted in BlockFi’s own bankruptcy. Catch up on Unchained’s previous coverage:  Sam Bankman-Fried Trial: Here’s Everything That Happened So Far SBF Trial, Day 1: Possible Witnesses Include FTX Insiders, Big Names in Crypto, and SBF’s Family SBF Trial, Day 2: DOJ Says Sam Bankman-Fried ‘Lied’ While Defense Claims His Actions Were ‘Reasonable’ SBF Trial, Day 3: Why a True Believer in FTX Flipped Once He Learned One Fact SBF Trial, Day 4: SBF’s Lawyers Annoy Judge Kaplan, While Wang Reveals Alameda’s Special Privileges SBF Trial, Day 5: SBF's Defense Finally Found Its Legs, But Can It Counter Caroline Ellison? SBF Trial, Day 6: Caroline Ellison Recalls 'The Worst Week of My Life' Did Sam Bankman-Fried Have Intent to Defraud FTX Investors? Here’s How Sam Bankman-Fried’s High-Stakes Trial Could Play Out SBF Trial: How Sam Bankman-Fried’s Lawyers Might Try and Win His Case The High-Stakes Trial of Sam Bankman-Fried Begins: What to Expect In the SBF Case, Elite Corruption Is What’s Really on Trial Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi everyone, Laura here with the Unchained Recap for Day Aid of the SBF Criminal Trial. The second week of Sam Bingman-Freed's criminal trial came to a close with former BlockFi CEO, Zach Prince, serving as a credible witness for the prosecution, particularly regarding the charge of defrauding Alameda researchers' lenders. He described the transparency of his lending business, which likely served to the jury, as a stark contrast when compared to FTX's secrecy about its lending to Alameda. His story also showed that BlockFi had an increasing level of comfort with Sam Bickman-Fried and his companies, which resulted in BlockFi giving a series of loans to Alameda and entering into an

agreement with FTCS for a line of credit and future acquisition. He capped off his tale by saying that the FTX and Alameda bankruptcies created a $1 billion hole in BlockFi that resulted in its own bankruptcy. all this may have painted him as a sympathetic figure to the jury. Further underscoring that point was a moment when Prince twice corrected Bankman-Fried's defense team over what he felt was a misrepresentation of the loans BlockFi had extended to Alameda, leading to a moment of tension in the courtroom. The prosecution spent a bit of time on how, unlike FTX, BlockFie was public about the fact

that it was lending out customer money. Then it elicited details about the company's decision-making process for loans, walking through how it stress test the quarter three, 2022 Alameda balance sheet to see what would happen if various numbers changed. At one point, the prosecution asked whether BlockFi would have approved the loan if the loan number was double what was represented on the balance sheet. In September that year, Ellison testified that Alameda had taken $14 billion in loans from FTCS. Prince responded, quote,

we probably wouldn't have lent to them at all, because if they had twice as many loans as what's represented here, they might be insolvent. Through a series of questions, prosecutors were able to get across that if BlockFi had known about other aspects of FTXs and Alameda's finances, such as loans to SBF and other executives, or knowledge that Alameda's assets were less liquid than the balance he represented, he said it would depend on various factors, but that those issues would change the calculus. Then, when asked, quote, did you ever knew that Alameda was using, if at all, customer money, he responded, no, absolutely not. When asked how that would have affected

their decision to lend, he said, quote, I think we wouldn't have worked with them because that's not something that's appropriate. Prince said, while Alameda paid back about $150 million in the summer of 2022, at the time of its bankruptcy filing in November 22, Alameda still owed BlockFi about $650 million. Moreover, he showed that FTX still held about $350 million of BlockFi's funds on the exchange. Once BlockFi realized it could not access its funds on FTX and that Alameda could not pay its loans back, BlockFi filed for bankruptcy. In its cross, the defense tried lines of questioning that seemed to try to pin the blame for BlockFi's bankruptcy on its own executives, but neither seemed effective. It first introduced a couple August of 2021 BlockFi credit memos

that analyzed the risks involved in Alameda's requests to increase its borrowing. At this time, BlockFi had lent $114 million to Alameda and cryptocurrencies such as USDC, ETH, and Bitcoin, while Alameda put down roughly $179 million in collateral in coins such as FD and Saul. Perhaps to advance the notion that BlockFi's woes stemmed from its management ignoring its own employees, the defense noted that BlockFi's credit team did not recommend approving Alameda's request in 2021 to increase their borrowing up to $730 million. Prince testified that BlockFi did not make this loan because of the reposed collateralization ratio of 110%. However, right after, the defense pressed him about the fact that BlockFi had made additional loans.

Asking about times when BlockFi's executive committee might make a different decision from the credit team's recommendations, the defense said, and that's what happened here. Prince responded, no, I already told you what happened here. What happened here is this credit memo is for a loan that was not made. Then when Cohen said, but later loans were made correct, Prince responded, yes, but this, you know, you're showing me a credit memo where they're saying, we recommend not making this loan, and I'm telling you, we did not make this loan. This raised the question of why defense attorney Mark Cohen had presented this particular document

rather than one pertaining to the loans he was asking Prince about. Then, as if the defense hoped to imply that BlockFi's bankruptcy would have happened regardless of FTX and Alameda's bankruptcies, Cohen asked about BlockFi's own financial status in the summer of 2022. That July, it had made a deal with FTX US for a $400 million line of credit, as well as future acquisition. The defense asked Prince if he was concerned at the time that BlockFi would go bankrupt. Prince responded, quote, I think that the range of my concerns as CEO of BlockFi pretty much always included everything from, you know, complete failure to extreme success. When asked again if he had a specific concern about going bankrupt at that time, Prince said that it had a lot of capable

professionals and that the business remained solvent and operational throughout that time. The defense asked again. But you felt the need to take in this capital, correct? Prince responded, I don't know that I would use the word need, but we decided that it was better for the business to do this transaction than for the business not to do the transaction. Prince ended his testimony by saying BlockFi likely would not have filed for bankruptcy if Alameda repaid its $650 million in loans and if BlockFi had access to its $350 million on FTX. The prosecutors are expecting to rest their case around the 26th. Upcoming witnesses include Nishaw. Rod Singh, Romnik Aurora, two FDX customers, an FBI agent, and more.

The trial will pick up next Monday at 9.30 a.m. ET. For real-time updates from the courthouse, be sure to check out my Twitter feed at Laura Shin, where I post video updates twice each day, court is in session. Thanks for listening.