BlockFi CEO Zac Prince has accused Alameda Research and FTX of orchestrating a coordinated attack on his crypto lending platform, which led to its collapse and bankruptcy earlier this year. Prince made the allegations during his testimony at the ongoing trial of Sam Bankman-Fried (SBF), the founder and CEO of Alameda and FTX, who is facing charges of fraud, market manipulation and racketeering.
According to Prince, Alameda and FTX used their influence and resources to undermine BlockFi’s business model, which relied on offering high-interest rates to crypto depositors and lending out their assets to institutional borrowers. Prince claimed that Alameda and FTX engaged in a series of malicious actions, such as:
Shorting BlockFi’s native token, BFI, on various exchanges, driving down its price and eroding its market capitalization. Spreading false rumors and negative publicity about BlockFi’s financial situation, regulatory compliance and security measures. Launching a competing product, FTX Earn, which offered similar services to BlockFi but with lower fees and higher returns. Poaching BlockFi’s clients, partners and employees by offering them better deals or incentives to switch to FTX Earn. Hacking BlockFi’s systems and stealing confidential data, such as customer information, loan agreements and collateral details.
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Prince said that these actions created a “perfect storm” that caused BlockFi to lose its liquidity, reputation and trust in the crypto market. He said that BlockFi was unable to meet its obligations to its depositors and borrowers, resulting in a wave of withdrawals, defaults and lawsuits. He said that BlockFi was forced to file for Chapter 11 bankruptcy protection in August 2021, leaving thousands of customers and creditors in limbo.
Prince also alleged that SBF was the mastermind behind the scheme, and that he personally profited from BlockFi’s demise. He said that SBF used his insider knowledge and access to manipulate the crypto market in his favor, and that he shorted BFI with leverage on FTX, making millions of dollars from its crash. He also said that SBF used his influence and connections to evade regulatory scrutiny and legal accountability.
Prince asked the jury to hold SBF responsible for his actions, and to award BlockFi with compensatory and punitive damages. He said that SBF’s conduct was “unethical, illegal and immoral”, and that he should be “punished accordingly”.
FTX has set up a complex corporate structure that involves multiple entities and jurisdictions. According to its website, FTX is owned by FTX Trading LTD, a company incorporated in Antigua and Barbuda. However, FTX also has subsidiaries and affiliates in other countries, such as FTX.US, which is registered as a money services business with FinCEN in the US.
FTX claims that it complies with all applicable laws and regulations in each jurisdiction where it operates. However, this may not be enough to protect it from potential lawsuits or enforcement actions. For instance, the US Securities and Exchange Commission (SEC) has recently sued Ripple, the company behind XRP, for allegedly selling unregistered securities. The SEC argues that Ripple’s corporate structure and global operations do not exempt it from US securities laws.
Similarly, the US Commodity Futures Trading Commission (CFTC) has recently fined BitMEX, another crypto exchange that offers futures and derivatives trading, for violating anti-money laundering and customer protection rules. The CFTC also charged BitMEX’s founders and executives with criminal offenses, including conspiracy to evade US regulations.
These cases show that the US authorities have the power and the will to go after crypto companies and individuals that they deem to be violating US laws, regardless of where they are based or registered. Therefore, FTX and Sam Bankman-Fried could also face legal consequences if they are found to be operating illegally or irresponsibly in the US market.
The question is: how likely is that to happen? And how severe would the penalties be? The answer is: it depends. It depends on many factors, such as the nature and extent of FTX’s activities in the US, the level of cooperation and transparency from FTX and Sam Bankman-Fried, the evidence and allegations from regulators and plaintiffs, and the interpretation and application of existing laws and precedents by courts and judges.
There is no clear-cut answer or rule that can determine the outcome of such a scenario. However, one thing is certain: it would not be easy or cheap for FTX or Sam Bankman-Fried to defend themselves from potential legal challenges in the US. They would have to hire lawyers, pay fines, settle claims, cooperate with investigations, comply with orders, and possibly face criminal charges or jail time.
Therefore, it is in their best interest to avoid such a situation in the first place. That means being more cautious and conservative in their business decisions, especially when it comes to offering products and services that are not clearly regulated or authorized in the US. It also means being more proactive and cooperative in engaging with regulators and lawmakers in the US, to seek clarity and guidance on how to operate legally and responsibly in the US market.
FTX is a remarkable success story in the crypto industry. But it also faces significant risks and uncertainties that could jeopardize its future. The US existing rule may not be enough to hold Sam Bankman-Fried responsible on FTX implosion. But it could be enough to cause him a lot of trouble and damage. Therefore, he should be careful and smart about how he runs his business.
SBF has denied all the charges against him and has maintained his innocence throughout the trial. He has argued that BlockFi’s failure was due to its own mismanagement, poor execution and risky business model. He has also claimed that he had no involvement or control over Alameda’s or FTX’s operations or decisions, and that he was acting in good faith as a competitor and an investor in the crypto space.
The trial is expected to last for several weeks, as both sides present their evidence and witnesses. The outcome of the case could have significant implications for the crypto industry, as it could set a precedent for how crypto businesses are regulated, litigated and valued.