By Michael Scott
The ongoing bankruptcy proceedings in the New Jersey District court revealed BlockFi discouraged employees from describing the risks of concentrated borrowers’ pools. A former employee narrated multiple occasions when BlockFi prohibited internal teams from concealing their concerns over concentrated borrowers. The startling revelation by the former employee blamed BlockFi for neglecting risk assessment and professional management culture.
Negligent Culture Confessed by BlockFi’s Former Employee
The former employee’s confession matches a Forbes 2020 report criticizing BlockFi’s culture of discouraging risk description in official internal communications. During the ongoing bankruptcy proceedings, the reports indicate that BlockFi gagged employees to avoid liability.
The narratives shared during the proceedings allege BlockFi executives often dismissed the advisory of risk management professionals. Instead, they pursued aggressive growth. The disclosure by the former employees casts a contrasting perspective for BlockFi. Notably, the accounts shared during the proceedings contrast BlockFi’s claims of integrating risk management into its DNA and mission.
Employees Discouraged from Questioning BlockFi’s Lending
The former employee lamented that efforts by the internal team to question the basis of concentrated lending to crypto whales such as Alameda Research and Three Arrows Capital. Often, the management hurriedly dismissed such accounts citing the collateralization of loans.
The narratives from the Court sessions reveal BlockFi executives disguised the weakness of the crypto lender’s risk assessment.
The former employee lamented that BlockFi always lied to the clients. For instance, BlockFi misrepresented facts regarding its risk management approach to reassure users that the business model is founded upon risk management. Executives misled users of its low risks profile. Instead, BlockFi was negligent despite the risk management professionals advising otherwise. The crypto lender violated the preservation principle of safeguarding clients’ funds and capital.
BlockFi Exposure in the Complex Crossowned FTX Firms
BlockFi executives cited the existence of FTX and affiliates as the source of its liquidity challenges. Although the executives dismissed majority assets were trapped at FTX, they recently admitted $355 million trapped in the embattled exchange.
Another $680 million loan advanced to Alameda Research was not honored. In comparison, the amount owed by the two companies amounted to $1 billion. Its financial health became complicated as BlockFi owes 400 million to FTX.US.