After star witness Caroline Ellison, crypto takes centre stage at Bankman-Fried trial

NEW YORK – After three days of riveting testimony in the case against FTX co-founder Sam Bankman-Fried, a Manhattan federal courtroom got pulled into the inner workings of the business that drives the market at the heart of the trial – crypto.

Mr Zac Prince, chief executive of defunct crypto lender BlockFi, took the stand on Friday to discuss his firm’s business relationship with the digital asset exchange and its sister trading fund, Alameda Research.

BlockFi, which was a lender to Alameda and client of FTX, had some US$1 billion (S$1.4 billion) in total exposure to the two companies at the point of its downfall in November 2022, Mr Prince estimated. He said he did not think BlockFi would have filed for bankruptcy in November 2022 “if the Alameda loans were still in good standing” and the funds on FTX were there.

Bankman-Fried is

accused of orchestrating a multibillion-dollar, years-long fraud

at FTX and Alameda, both of which

also collapsed last November.

Mr Prince’s testimony was in stark contrast to that of Caroline Ellison, the government’s star witness, who was on the stand for three days portraying Bankman-Fried, her boss and former boyfriend, as the mastermind behind a scheme to use FTX customer funds for speculative, illiquid trading at Alameda.

Prosecutors sought to show that Mr Prince and his company BlockFi were victims of Bankman-Fried’s alleged schemes, making loans to Alameda based on misleading balance sheets. Defence lawyers, however, sought to demonstrate that BlockFi provided the loans to Alameda willingly, with knowledge of the risks, and that it was industry norm for borrowers to provide “unaudited balance sheets” to lenders.

BlockFi was among some companies that struggled under a rush of withdrawal requests and soured asset prices last year, a situation that also impacted Alameda. In May 2022, BlockFi had US$1.1 billion in loans outstanding to Alameda, Mr Prince said, which it repaid in full.

After BlockFi received a rescue package from FTX US over the summer, it continued to lend to Alameda, providing around US$850 million in net new financing up until the fund collapsed in early November.

An explanation from Mr Prince about how BlockFi conducted stress-testing on Alameda’s proffered collateral – a mix of tokens affiliated with FTX – prompted the judge to request that he use plainer terms, such as an analogy about car loans.

Since filing for bankruptcy, BlockFi had been challenged by its own creditors for failing to spot warning signs when offering substantial loans to Alameda. Much of Mr Prince’s testimony focused on how much due diligence it conducted on Alameda, citing a balance sheet from the second quarter of 2022 that appeared to show Alameda with billions of dollars in assets greater than its liabilities.

The prosecution started Mr Prince’s questioning at the end of Thursday’s session. His entrance into the courtroom that day prompted a rare glance upwards from Bankman-Fried, who has mostly been glued to his laptop throughout the trial. bloomberg