2.Zac Prince — Direct/Cross/Redirect/Recross (Part 2)

ZAC PRINCE: Yes, we did.

ZAC PRINCE: I would say in two primary ways. So we had some cryptocurrency exchanges that were borrowers that would, you know, borrow assets from BlockFi, and we also used cryptocurrency exchanges to place trades, effectively trades that were on behalf of our clients because we had a trading product that was available to our clients and then we needed to reproduce those trades on an exchange on behalf of our clients. So lending to exchanges and also trading on them.

ZAC PRINCE: Sure. So essentially on our retail platform, users could buy and sell cryptocurrencies. BlockFi was not an exchange, though, we——which basically meant that we weren't matching buyers and sellers. We were more like a——a broker or an intermediary, so we would add a little bit of a spread to the price of the cryptocurrency that someone was looking to buy or sell. After the user placed the trade in our app, that trade was done, and then on the back end of that, we would place a similar trade offsetting the user's trade on a cryptocurrency exchange.

ZAC PRINCE: Well, I think there's a few things. So certainly the, you know, the key function that crypto lenders played in the market was very different than what exchanges played in the market. So crypto lenders were, you know, primarily providing a lending function, providing debt capital to different market participants, providing yield to, you know, other market participants who wanted to earn yield, whereas an exchange, their primary purpose is to match buyers and sellers and, you know, find accurate clearing prices for the——for the different currencies that were being traded. There was also a very important distinction in terms of how assets that were deposited with either a cryptocurrency lending platform or an exchange were understood to be treated, based on——

ZAC PRINCE: Sure. A. So on crypto lending platforms, generally there was a interest rate that was being earned when you held assets there, and there was an understanding that the reason you were earning that interest rate was because the lending platform was going to take those funds and further lend them on. And there were generally words that describe this; in BlockFi's terms of service there were words that very clearly described this; in our marketing materials there were words that very clearly described this. We will lend, relend, pledge, rehypothecate, which is a fancy legal word that means relend assets that you're given. Contrast that to cryptocurrency exchanges, where——

ZAC PRINCE: Sure. A. Contrast that with cryptocurrency exchanges with which I dealt personally or BlockFi dealt with. The expectation——

ZAC PRINCE: Yes, absolutely.

ZAC PRINCE: Yes, I was heavily involved in those decisions.

ZAC PRINCE: Sure. To put it simply, the assets stayed within the exchange environment. They weren't re-lent on or taken off of the exchange to be used by some——by some third party. They stayed within the——whatever the custodial setup was of the exchange.

ZAC PRINCE: It's, you know, whatever——whatever technical or, you know, security infrastructure the exchange had to hold the assets that the users had deposited and keep them safe.

ZAC PRINCE: Rehypothecation effectively means you're taking collateral from one party and then using that collateral to make a loan to another party. And I was using the term to describe, you know, crypto lending platforms. So crypto lending platforms, BlockFi was very clearly doing rehypothecation and disclosing that we were doing rehypothecation.

ZAC PRINCE: Sure. So we had a couple of, you know——going back to what I was talking about yesterday, a couple different kind of loan products. We had our retail-facing loan products and our institutional-facing loan products. In both cases there were, you know, steps that borrowers had to go through before they could take a loan with us. On the retail side, the steps were basically that they had to go through what was called our KYC——which stands for "know your customer"——checks; they had to sign the loan agreement; and they had to transfer the collateral that they were posting for the loan on to the BlockFi platform. And on the retail side of our platform, all borrowers accessed loans at effectively the exact same terms. On the institutional side of our platform, there was a bit more customization available to the borrowers, and there was a——an even more thorough underwriting and diligence process that went into how we evaluated counterparties that we would essentially work with as borrowers on the institutional side. So there was "know your customer"——KYC——checks, those are generally more thorough for businesses, because you have to look at the identities of anyone who's an owner of the company greater than a certain percentage, but we also did diligence around what type of business, you know, the potential institutional borrower was, what the financial health of that business was, and we would, you know, try to underwrite any and all financial documents that we could get our hands on from the institutional clients. We also would at times, depending on the nature of their business, do some security or technology underwriting of their business. And then our risk management team developed very robust policies and procedures that, based on our underwriting, would categorize institutional, potential institutional clients into different risk tier buckets, and then those risk tier buckets kind of dictated under what terms we would be able to lend to that institutional borrower if they were approved onto the platform; so at what collateral levels, at what interest rates, etc.

ZAC PRINCE: "Due diligence" is a common term used to describe——I mean, it's effectively kind of like research to——to make an informed decision about, you know, whether you should do something, and sometimes you might use the word "due diligence" to describe the work you're doing to decide if an investment is one you should make. In our case, the due diligence we were doing was to try and make an informed decision around whether we should be lending to a certain counterparty or not and under what terms we would be comfortable lending to them.

ZAC PRINCE: Yes, absolutely.

ZAC PRINCE: So we, you know, we had——we would ask for effectively any and all financial information that the potential borrower was willing to share with us. In some cases the information that they were comfortable sharing would be relatively limited, so, for example, a net asset value statement that would just describe for, you know, for a fund, for example, how many assets were in the fund. In other cases we received audited financials, which could be income statements and balance sheets, and then everything, you know, kind of in between, so unaudited financials would be in between those two things, but you know, financial——financial reporting, financial——financial documents that showed the health of the business.

ZAC PRINCE: NAV stands for net asset value. And it's a common——it's a common document that's produced by asset managers or funds, where they're saying, you know, here's how many assets we have in our fund vehicle.

ZAC PRINCE: So, you know, audited financials refers to financials that are produced and verified by a third-party accounting firm.

ZAC PRINCE: I mean, across our, you know, risk management, compliance, and security teams, depending on, you know, what point in time in 2022, probably between a hundred and 200 people, and these were, you know, generally folks that they came from sophisticated financial industry backgrounds, so, you know, think folks who worked at large banks doing similar roles or large asset management companies doing similar roles before they joined BlockFi.

ZAC PRINCE: No.

ZAC PRINCE: So our lending decision-making process, especially for institutional loans, became relatively, you know, robust and sophisticated over time. So there were, you know, risk management policies and procedures that, you know, that were governed at the board level. We had a board——we had a board audit and risk committee that I was, you know, that I was a part of, as CEO. Beneath that we had an executive investment and lending committee that I was also a part of, and then we had, you know, teams of people underneath the executive part of the org who had certain levels of permissions to, you know, make new loans that fit within the frameworks that had already been approved. But I was heavily involved across, you know, kind of every layer of that matrix of decision-making for lending.

ZAC PRINCE: Sure. I mean, different types of loans, certainly versus the retail side of the platform I mentioned yesterday, on the institutional side of the platform we also would make loans denominated in cryptocurrency, so you could have a loan that was denominated in Bitcoin or denominated in Ethereum. Additionally, we had a, you know, variety of structures in which we would lend to institutional clients based on our view of their counterparty risk or creditworthiness. So to give a simple example, let's take, you know, the best potential financial firm that we could potentially face. Maybe that's BlackRock or something. And we would potentially lend them a certain amount of money without them needing to post collateral back to us. Contrast that with, you know, a counterparty where we weren't——they weren't in as strong of a financial position. We might require them to post collateral. And we would charge different interest rates, we would have different, you know, terms in the agreement around how fast margin calls needed to be met or how fast loans could be called back. So there were a number of different variables that——that were managed on individual loans and at the counterparty level.

ZAC PRINCE: Collateral is——it's something that a borrower would post as, you know, security for a loan. So like a simple example of collateral would be when you get a mortgage on a house, the house is, you know, acting as collateral for the loan and protection for the bank. In a scenario where you don't pay the loan, the bank can take the house. So in cryptocurrency land, we were taking collateral in the form of cryptocurrency. So someone could, you know, give us one Bitcoin worth, just to use small numbers, $10,000. We make them a $5,000 loan. If they don't pay off the $5,000 loan, we had the ability to sell their Bitcoin to make sure we got paid back.

ZAC PRINCE: So let's stick with that same example. You've got one Bitcoin, Bitcoin is worth $10,000. We made a $5,000 loan, with that one Bitcoin as collateral. There would be in the loan agreement preset margin call levels. So if that Bitcoin that was worth $10,000 when we started the loan declined in value and was worth, just for illustrative purposes, let's say $7,000, that might be the trigger level at which in the loan agreement we would issue a margin call. And what the margin call does is it says to the borrower, you need to either post additional collateral, pay down some of your loan, or run the risk of us needing to liquidate some of your collateral in order to pay off the loan because that——that is us managing our risk. And this term "margin call" folks might be familiar with from just like a traditional stock brokerage account. You know, if you——if you buy stocks and then you use margin from the broker, they have a similar type of function, where if the value of the stocks that you purchase goes down, you could get a margin call and potentially have your securities liquidated if you don't take action.

ZAC PRINCE: Sure. I mean, just as a baseline, these were, you know, very robust loan agreements. I don't know off the top of my head how many pages our loan agreements were in 2022, but it was, you know, probably more than 30 or 40 pages. I mean, these were, you know, robust legal documents.

ZAC PRINCE: Oh, okay.

ZAC PRINCE: Yeah, sorry about that. Understood. The majority of the loans that we made on the institutional side of our platform were what we referred to as open term, which meant that either the lender——BlockFi——or the borrower could elect to end the loan with relatively short notice——generally, you know, two to five business days' notice. We did also make some loans that went out to——on the institutional side. The longest I think we ever did was a two-year term, which would mean, you know, the borrower is able to keep the loan out for a full two years before the lender would have the ability to ask for repayment. But the vast majority of the loans that we did were on an open-term structure, which meant that either side could end the loan with just a few days' notice.

ZAC PRINCE: We did.

ZAC PRINCE: We——we had three different offices in New York. The first was at 86 Chambers Street in Tribeca; and then subsequently we had two different offices in the Financial District at 115 Broadway and 150 Broadway.

ZAC PRINCE: Principally out of those offices.

ZAC PRINCE: Yes, we did.

ZAC PRINCE: I don't know the exact date, but it was either towards the end of 2020 or first half of 2021.

ZAC PRINCE: High single-digit billions. You know, if we're talking early 2021, I think the, you know——depending on the day, the principal outstanding of the overall lending that BlockFi was doing was probably between 5 and $10 billion.

ZAC PRINCE: When it first started, you know, like a lot of our institutional borrowers, they were relatively small relative——they were small relative to that overall amount of lending that we were doing. So, you know, initially probably 10 to 15 million——10 to $50 million for the first, you know, three or six months of the relationship.

ZAC PRINCE: Yes.

ZAC PRINCE: Approximately, you know, Q2 or Q3 of 2021.

ZAC PRINCE: Oh, sure. Sorry. The second quarter or third quarter. So second quarter would be like April, May, June; third quarter would be July, August, September.

ZAC PRINCE: Yes. So, you know, initially the relationship was started, and the request for more borrowing was coming in through our APAC team, which stands for the Asia-Pacific region. So we had a team in Singapore, and our MD there was the individual on our team responsible for managing the Alameda relationship at the time.

ZAC PRINCE: Yeah. MD stands for managing director. So he was——you know, the managing director was basically like the head of our Asia-Pacific office and the lead person responsible for managing relationships with the institutional clients that we had in that region.

ZAC PRINCE: Yes. So the, you know, the request had come in for them to borrow more, and there was a suggestion made at some point that, you know, it would be a good idea for the CEOs of each of the respective companies, myself and Sam, to have a call together, which we——which we set up.

ZAC PRINCE: My memory of the conversation is that it was, you know, very similar to a lot of calls that I had done like this before. So, you know, Sam and I each did five- to ten-minute introductions of our, you know, respective companies, there was a, you know, discussion around Alameda's desire to borrow more, and a discussion around, you know, whether there were any other ideas of things that our——that our firms could potentially do together.

ZAC PRINCE: We did. So in the, you know, back half of 2021 and first half of 2022, our lending to Alameda increased significantly.

ZAC PRINCE: No.

ZAC PRINCE: I think the——the primary thing that they provided that, you know, our team reviewed regularly was unaudited balance sheet statements, which we received on I think a regular quarterly basis, roughly, you know, once a quarter. They also provided information at one point around cryptocurrency wallets. There was an exercise our risk management team did to verify, you know, cryptocurrency wallet information that they had given us. And then there were numerous conversations that were had between our risk management team and representatives of Alameda.

ZAC PRINCE: I think for——for every loan, if not almost every loan that BlockFi made to Alameda, that we had collateralization requirements, so there would be some——some form of collateral posted. The most common and largest type of collateral that they posted was FTT, but they also at times posted other cryptocurrencies as collateral.

ZAC PRINCE: Yeah. It increased substantially by a factor of, you know, roughly 10X or a little more. So in May of '21, we were probably lending them, like I said earlier, around 50 million; maybe a little more or less than 50 million. By May of 2022, the lending had increased to, you know, a principal outstanding balance of a little over a billion. I think it was around 1.1 billion.

ZAC PRINCE: Well, the, you know, the information that they provided to our team, financial statements and other information that we relied on in evaluating their risk as a counterparty; they also posted significant amounts of collateral and, you know, throughout that time period, adhered to all the terms in the lending agreements like, you know, like we would expect a good borrower to do. They made their interest payments on time; if there were ever margin calls, they met them.

ZAC PRINCE: Yeah. In May and——May and June of 2022, the cryptocurrency market was experiencing downward volatility. The prices of major cryptocurrencies were declining. There were, you know, a few notable failures or blowups of cryptocurrency firms. Initially there was a——a firm called——or a cryptocurrency called Luna. The Terra Luna ecosystem blew up. Subsequently a hedge fund——

ZAC PRINCE: Yeah. So Luna was a——was a cryptocurrency. And think of like Bitcoin or Ethereum. Call it a competitor to Bitcoin or Ethereum. Terra was a——it was like a——what we call a stablecoin in cryptocurrency land. It's another cryptocurrency trying to mimic the value of a dollar. And each of these had their own kind of blockchain protocols and they were connected to each other. One of the mechanisms that was used to try and keep the coin that was supposed to mimic a dollar at a value of a dollar was the other cryptocurrency Luna. And this——that whole concept came crashing down. The dollar coin became not worth a dollar, the Luna coin, you know, declined in price dramatically as well.

ZAC PRINCE: So Three——Three Arrows Capital was a——a kind of trading firm or hedge fund that was also a borrower at BlockFi. They defaulted on loans that they had with us in late May or early June of 2022. So we had a very large collateral liquidation process with them and ultimately, at the end of that process, were sitting on——were sitting on some losses. I'm not sure if I'm supposed to go into June of 2022.

ZAC PRINCE: Sure. Well, the——the, you know, bigger than Three Arrows, what had a big impact on us at that time is that two of the other top cryptocurrency lending platforms, Voyager and Celsius, paused their platforms, and ultimately both of them filed for bankruptcy. But they, you know, they paused the ability of consumers to be able to withdraw money from——from their platform. So you can imagine what, you know, what effect that had on——on BlockFi if you have a couple of crypto lending platforms shutting——shutting their doors. You know, we were experiencing the highest level of withdrawals that we had——that we had ever experienced in our——in our history as a company. So consumer confidence in cryptocurrency lending platforms and, you know, the broader cryptocurrency market was not in a great spot at that time.

ZAC PRINCE: We——so, you know, if you think about our model, when folks are holding funds on our platform to earn interest, we're then lending that out to borrowers over here. If the folks that were holding the funds go to withdraw their assets, we have to close out the loans with the——with the firms that were borrowing. And so, you know, in June of 2022, I believe we called back, you know, essentially every single open-term loan that we had on our——on our platforms. This was, you know, billions of dollars in withdrawals from consumers and then loans that were called back so that we could meet those withdrawals.

ZAC PRINCE: It did.

ZAC PRINCE: I don't know the exact date, but it would have been last week of May or first two weeks of June of 2022.

ZAC PRINCE: Because the structure of the loans was that they were, you know, open-term loans, so we had the right as the lender to terminate the loan with, you know, a few days' notice.

ZAC PRINCE: Yes, in full.

ZAC PRINCE: Yes. In the——in the back half of June——

ZAC PRINCE: It was the FTX.US entity, which I'm not a hundred percent certain about this, but I think it——I think the FTX.US entity had a corporate name of like WRS. I could have that wrong. But it was——FTX.US was the, you know, counterparty that we did that transaction with.

ZAC PRINCE: Sure. So, you know, we——given the market volatility and the action——the activity that we were seeing on our platform and a, you know, hyperawareness that for a business like ours, consumer sentiment and confidence was——was, you know, really important for the health of our platform, we decided that if we could bring additional capital into the business to help with that consumer confidence, that would be a valuable thing. And so we ran a, you know, a process talking to potential investors, and ultimately a deal that was presented to us by FTX was, you know, the deal that BlockFi determined was best to proceed with. And the deal that we did had two parts. There was a $400 million credit facility that was junior to BlockFi client funds in the capital stack and then an option for——

ZAC PRINCE: Sure. So junior in the capital stack would mean they get paid back after. So in a scenario where something, you know, bad happened to BlockFi and it had to file for bankruptcy, if BlockFi owes $10 to people but there's only $5 there, and the clients had $5 but then we had this $5 loan, the $5 would go to the clients, not to the loan. That's what being junior means. It's the order of repayment within a capital structure.

ZAC PRINCE: Yes.

ZAC PRINCE: The other aspect of the transaction was a option to acquire BlockFi for a price of between 15 to $240 million, based on certain performance targets, and the way that part of the agreement was structured was FTX had the ability to fully acquire BlockFi starting, you know——the first time they could fully acquire BlockFi was one year after we entered into the transaction. So the transaction was finalized in early July and FTX had the option to acquire BlockFi for the first time in July of 2023. And the orientation that, you know, BlockFi had, based on our understanding of the deal, is that, you know, that was going to be exercised at the, you know, at the first window.

ZAC PRINCE: No.

ZAC PRINCE: No.

ZAC PRINCE: Yes.

ZAC PRINCE: I wouldn't say that there was a——I wouldn't say that there was like a quantitative, you know, direct association between the two things, but it was another qualitative data point that, you know, our team had around the, you know, capital and actions of the FTX enterprise as a——as a market participant. So——

ZAC PRINCE: No.

ZAC PRINCE: There weren't——there wasn't anything that we, you know, changed fundamentally in terms of our risk management policies and procedures or the way that we were classifying Alameda as a borrower and the types of loans that we would make to them post that transaction versus before.

ZAC PRINCE: Yes. So, you know, after this transaction completed and our platform kind of stabilized and the withdrawals, you know, returned to kind of normal levels, we did start lending, we did start making new loans to Alameda.

ZAC PRINCE: I believe it started maybe at the end of August——or sorry——maybe at the end of July but more likely probably in the August or September time frame is when we started making the new loans to Alameda.

ZAC PRINCE: They continued, you know, up through early November of 2022.

ZAC PRINCE: Roughly 800——between roughly 800 or 850 million worth of new loans.

ZAC PRINCE: Yes, we received, you know, updated quarterly balance sheets.

ZAC PRINCE: It appeared strong. I mean, in the balance sheets that we had, they, you know, they had assets that were greater than liabilities of many billions of——of dollars.

ZAC PRINCE: Yes, this is the Q2 balance sheet that Alameda provided to BlockFi.

ZAC PRINCE: Yes. So Q2 refers to April, May, June, and generally we would receive quarterly statements from counterparties, you know, a few weeks after the end of the quarter, so we would get the Q2 balance sheet from a counterparty, you know, sometime in early July, for example.

ZAC PRINCE: Looking at the size and composition of the——of the asset base.

ZAC PRINCE: What are the——what are the actual, you know, assets, is it cash, is it cryptocurrency, is it other things.

ZAC PRINCE: Yes.

ZAC PRINCE: Yes.

ZAC PRINCE: A liquid asset is one that you can, you know——there's an active market for that you can sell, and an illiquid asset would be something that there's not an active market for and it's——and it's harder to sell.

ZAC PRINCE: I would say it's definitely something that——that our team would take into account in its evaluation of——of the assets that a counterparty had.

ZAC PRINCE: To——to help understand, you know, to——to have as fulsome of an understanding as——as we could have about how liquid a portfolio was and therefore a counterparty's ability to either post collateral or pay down a loan. These types of things were informed by how many assets they had and what those assets were.

ZAC PRINCE: So liabilities are——are generally things that companies, you know, are going to need to pay for, so loans are liabilities, tax bills are liabilities, so liabilities are generally things that a business, you know, needs to——needs to pay.

ZAC PRINCE: Yes.

ZAC PRINCE: This is, you know, kind of like a——kind of like a net asset value, but it's, you know, assets minus liabilities, what's the, you know, what's the equity of the entity after accounting for all the liabilities that it has against the assets.

ZAC PRINCE: That they were still a good candidate for lending and were well capitalized.

ZAC PRINCE: If you look at the retained earnings line, they have 6 point——can't tell if it's a 6 or an 8, but north of 6 billion, north of 6 billion in, you know, retained earnings or north of 6 billion of assets even after accounting for all of their liabilities.

ZAC PRINCE: I mean, largely that the quantum of assets, you know, over 14——over 14 billion of——of assets with, you know, a significant portion of that, I mean, over 130 million of just cash and cash equivalents. I mean, this was a——based on this balance sheet, my view was that this was a well-capitalized entity.

ZAC PRINCE: Yes.

ZAC PRINCE: We——I understood those loans to be loans from BlockFi and other crypto lending firms.

ZAC PRINCE: Based on conversations that——that BlockFi had had with representatives of Alameda, that, you know, for——for a period of time we were told that we were, you know, their——their smallest lender and that our——

ZAC PRINCE: Oh, sorry.

ZAC PRINCE: Other than that——other than that conversation that, you know, Sam and I were both on in mid-2021, I don't know that Sam and I ever had direct conversations about that Loans line item or what comprised the rest of it.

ZAC PRINCE: Absolutely. So I spoke to Caroline Ellison about it; there was a gentleman at Alameda named Richard Chang, who, you know, had very frequent conversations with members of the BlockFi team.

ZAC PRINCE: Yes, I do. It's the Q3 2022 Alameda balance sheet that we received.

ZAC PRINCE: July, August, September.

ZAC PRINCE: Usually, shortly after the quarter ends.

ZAC PRINCE: That's right. It's like the end -- at the end of the third quarter this was -- this was the balance sheet. This was the financial condition --

ZAC PRINCE: Yes.

ZAC PRINCE: It's the third quarter. So July -- end of September. I would think it would be as of 9/30 or whatever the last day of September is.

ZAC PRINCE: Yes.

ZAC PRINCE: Same as for Q2, that they were loans from other crypto lenders.

ZAC PRINCE: As I said earlier, there were -- I know there were exercises where the BlockFi team received information about specific cryptocurrency wallets from Alameda. There were conversations we had with them where information was shared more about the composition of some of the specific line items. I think those are the --

ZAC PRINCE: They evaluated them fulsome. This was probably the primary thing we were relying on -- our team was relying on and evaluating to understand the financial health of Alameda as a counterparty.

ZAC PRINCE: Stress testing is taking some piece of data and then saying, you know, if a certain scenario were to happen what impact on this data would that scenario have. So in a financial context our team would run stress tests on all kinds of things. We would stress test what would happen to our loan portfolio if Bitcoin declined by a certain amount at a certain period of time. There was a time where we did stress tests specifically on Alameda's balance sheet for certain scenarios.

ZAC PRINCE: This is a credit memo. So credit memos were frequently produced by our risk management team. They were basically analyses of certain scenarios, sometimes with recommendations, but the scenario could be, there is a new potential borrower, we have just completed our underwriting, here is what that looks like, or the scenario could be, the quarterly review of a certain borrower or it could be a market-related review that they conducted, and then these credit memos would be sent around so that they were socialized and understood by key decision makers and executives within the company, myself included.

ZAC PRINCE: Yes.

ZAC PRINCE: Regular part of our business operations.

ZAC PRINCE: Yes.

ZAC PRINCE: Credit memo.

ZAC PRINCE: Yes.

ZAC PRINCE: Sure. This is in the -- in the second column, underneath the green where it says consolidated in green, these are the exact same numbers as the Q3 balance sheet from Alameda. So it's the Q3 balance sheet from Alameda. Then in the subsequent columns, the subsequent three columns, our risk team was applying a stress scenario. On the far right column there are some notes about what they were stressing and what their understanding was of the composition of certain line items on the balance sheet. What they were stressing here was FTT, which was that primary collateral type that we received from Alameda, Serum, and Solana. They were stressing those coins going down in price. So the first column in blue is a 35 percent down stress test, the next column in yellow is a 50 percent down stress test, and then the final column is stressed a hundred percent, which is saying, if FTT just went to zero, what then happens to the balance sheet of Alameda.

ZAC PRINCE: That's right. Then you can see, when that color appears further down in the column, it's because the numbers changed based on the stress scenario from the original balance sheet, which is in the first column.

ZAC PRINCE: Running a scenario where the price of FTT declined by a certain amount.

ZAC PRINCE: Yes.

ZAC PRINCE: If I may, your Honor, you said we were looking at what happens to the collateral. What we were looking at was what happens to the overall Alameda balance sheet if the collateral has specific price declines.

ZAC PRINCE: Yes.

ZAC PRINCE: Yes.

ZAC PRINCE: That's in red.

ZAC PRINCE: Our conclusion was basically that they would still have -- even in a scenario where FTT went to zero and Serum went to zero, they would still have positive equity to the tune of 638 million and change. They would still be solvent. They would still have much more assets than liability, 600 million, 638 million more assets than liability.

ZAC PRINCE: Well, if you look at the top of that row, the line items that still have numbers next to them, just calling out one of the biggest ones, crypto held, which is the second line underneath current assets, crypto held, which was represented to us to be 50 percent stablecoins, 50 percent BTC and ETH. They would still have 4.1 billion of assets there. And then all the other assets that have corresponding numbers next to them in that column are the assets that they would still have.

ZAC PRINCE: That number there is taking 8.316 billion of total assets minus 7.677 of total liabilities.

ZAC PRINCE: It depends on how much higher. If it were -- it depends on how much higher.

ZAC PRINCE: If it were $5 billion higher, then this would show negative equity in quite a few scenarios, which would be very different than positive equity, and it would certainly have an impact on our lending decisions.

ZAC PRINCE: If they were of a material size, absolutely.

ZAC PRINCE: I mean just, if they were -- call it like material percentage, let's say like greater than 5 percent of the overall size of the balance sheet here, then surely it would have -- it would absolutely have an impact.

ZAC PRINCE: We probably wouldn't have lent to them at all because I think even without doing a stress test, if they had twice as many loans as what's represented here, they might be insolvent.

ZAC PRINCE: No.

ZAC PRINCE: Correct.

ZAC PRINCE: Again, it depends on the quantum, but I think that -- I think there would have been a lot of questions about why that was happening and under what structure it was happening. And depending on the answers to those questions, it could have potentially made us completely unwilling to lend to Alameda.

ZAC PRINCE: No.

ZAC PRINCE: Similar answer. It would depend on the quantum of the loans and it would depend on Alameda's responses to the questions that our team surely would have had. But BlockFi's business went through a lot of things where we were under a microscope, whether it was a regulatory microscope or otherwise, so we were very familiar with rules and extra attention that existed around any type of dealings between a company and the company's insiders and how that's not a generally accepted activity. I think that scenario that you proposed would have given us a lot of pause at a much smaller dollar number because it's just a really hard thing to explain a good reason for that to happen.

ZAC PRINCE: Hard to say. It depends on the specific asset and the quantum, but it was something that we took into account in making the decisions of whether or not to lend and then under what terms. We wanted to see -- we could be comfortable lending to someone that had a lot of illiquid assets if we were comfortable that the size of lending we were doing to them was at a level where they would be able to continue posting more collateral and we were confident in that asset long term. The converse could also be true if it was a very, very illiquid asset that we weren't confident we could sell under any scenario. It really just depends on the details.

ZAC PRINCE: No, absolutely not.

ZAC PRINCE: I think we wouldn't have worked with them because that's not something that's appropriate.

ZAC PRINCE: Yes. BlockFi used the FTX platform to store some of the assets that were posted to us as collateral by Alameda. Specifically, a portion of the FTT that we received as collateral for loans that we were making to Alameda we held on FTX. We also placed funds on FTX that we used for trading for that client trading scenario that I talked about earlier. FTX was an exchange where we -- FTX was an exchange where we traded cryptocurrencies.

ZAC PRINCE: So using small numbers here, BlockFi is making a loan to Alameda. We are lending them one dollar. They are giving us $2 worth of FTT. There were periods of time, including in the second half of 2022, where our storage method for some of those to FTT that Alameda had given us as collateral was to hold it in the BlockFi account on the FTX exchange.

ZAC PRINCE: Alameda would send the collateral to us. The way that works is, BlockFi provides a cryptocurrency wallet address to the Alameda team. The Alameda team would then send the tokens to that address. Once they were there, the BlockFi team would move a portion of them to the FTX exchange where BlockFi had an account and there were different wallet addresses associated with that account. So you have two transactions that show up on the Blockchain, one with the coins coming from Alameda to BlockFi and then another with a portion of the coins going from BlockFi to FTX.

ZAC PRINCE: Yes.

ZAC PRINCE: We would place cash or stablecoins in various cryptocurrencies on FTX so that we had currency there to be able to place the trades that we needed to make effectively on behalf of our customers for our trading product.

ZAC PRINCE: Approximately $350 million worth of assets in our FTX account.

ZAC PRINCE: That they would only be used for the purposes of affecting trades that BlockFi made on the FTX exchange, not that they would ever be rehypothecated or anything like that. They would just stay at the exchange and be available for us to trade.

ZAC PRINCE: I'm sorry. What period of time, did you say?

ZAC PRINCE: November 2022, at the very beginning of November of 2022, our loans to Alameda were between 800 and 850 million in total value. At the time of FTX's bankruptcy filing, in mid-November, about 150 million had been paid back, so it was around 650 million.

ZAC PRINCE: Primarily FTT, but we also had some Solana.

ZAC PRINCE: Yes.

ZAC PRINCE: Same thing we always do. So we, in accordance with the loan agreement, based on certain price levels, issued margin calls, and initially it was a couple of margin calls that were met. Subsequently, we also sought to recall the loans in the open-term loans.

ZAC PRINCE: Some, yes.

ZAC PRINCE: Roughly 150 million was repaid.

ZAC PRINCE: No. There were still approximately $650 million worth of loans that were outstanding.

ZAC PRINCE: Yes.

ZAC PRINCE: I believe it was more FTT. I believe they in fact, in November, did once, or maybe twice, through the process of receiving margin calls, post additional FTT. In the second week of November, they also posted Robinhood, shares of Robinhood stock and shares of Grayscale trust shares. It's kind of like a cryptocurrency vehicle that you can trade in a brokerage account, in a traditional brokerage account.

ZAC PRINCE: I mean the total amount that we have is roughly 350 million. It's hard to say exactly. I don't know off the top of my head exactly what amount of that was customer funds versus collateral that they had posted.

ZAC PRINCE: A little over a billion dollars worth.

ZAC PRINCE: About 650 million lent to Alameda, about 350 million on the FTX exchange.

ZAC PRINCE: Sure. I mean, once it became clear that repayment of the Alameda loans and being able to access the funds that we had on FTX was impaired, once it became clear that that was not going to be possible, our view of the financial health of BlockFi's business was such that we needed to declare bankruptcy.

ZAC PRINCE: Good morning.

ZAC PRINCE: Yes.

ZAC PRINCE: Correct, I have never been the CEO of a crypto exchange.

ZAC PRINCE: No. We had a trading product at BlockFi, but we were not an exchange.

ZAC PRINCE: I don't know an exact number, but probably between 50 and a hundred that mattered. But total number of crypto exchanges, it could have been much higher than that.

ZAC PRINCE: Directionally speaking.

ZAC PRINCE: Certainly not of every single one of them.

ZAC PRINCE: Just to be clear, for exchanges that we worked with, reviews were done.

ZAC PRINCE: Our team certainly did. I learned about them through our team.

ZAC PRINCE: Yes. And any other agreements that were entered into between BlockFi and exchanges.

ZAC PRINCE: Yes. I mean, lawyers or compliance people on our team, either internal counsel or external counsel, would have reviewed terms of service, full review of terms of service for any platform that we worked with.

ZAC PRINCE: I couldn't say exactly which lawyer for which exchange specifically, but our general counsel is Jonathan Mayers. He had three deputy general counsels, and then they had teams beneath them.

ZAC PRINCE: Alice Lu, Ross Kirschner, and Usec Rho.

ZAC PRINCE: Yes.

ZAC PRINCE: Yes. The BlockFi interest account, which we frequently referred to as a BIA.

ZAC PRINCE: Sure. So the BlockFi interest account had published rates on our website, which were interest rates or yields that folks who held funds in the BlockFi interest account could earn. The interest that they earned was paid out to their account on a monthly basis. And the way that BlockFi generated the interest that we were paying to folks who held funds in those accounts was by lending the assets that were placed into the BlockFi interest accounts.

ZAC PRINCE: Yes.

ZAC PRINCE: That's correct.

ZAC PRINCE: I believe what I said was that I think the first loans that BlockFi made to Alameda occurred sometime towards the tail end of 2020 or the first half of 2021, sometime in that window.

ZAC PRINCE: Yeah. We would refer to it as our underwriting process or counterparty onboarding process, and that process included us doing due diligence on the counterparty.

ZAC PRINCE: Yes.

ZAC PRINCE: Yes.

ZAC PRINCE: I'm done.

ZAC PRINCE: Correct.

ZAC PRINCE: Correct.

ZAC PRINCE: Correct.

ZAC PRINCE: Yes. The credit team was a group that was within the risk management team. If I say risk management team, I'm also talking about the credit team, which was a subgroup --

ZAC PRINCE: Yes.

ZAC PRINCE: Yes.

ZAC PRINCE: Yes. I mean, underneath the request, the first bullet is that the sales team, that refers to our institutional sales team, they are requesting capacity to borrow more in general, potentially up to 1 billion gross over collateralized by FTT/SOL/SRM.

ZAC PRINCE: We had already -- at this point in time, if you look at the next bullet, we had already started lending to Alameda, but, yes, there was -- we were having discussions and going through a decision-making process for whether or not to increase that lending and, if we were to increase it, at what terms.

ZAC PRINCE: It's our risk team describing the way they think about certain stress scenarios for whatever they are writing the credit memo about. So depending on what the credit memo is about, they would -- they could have different stress scenarios, if certain things were -- if certain things were to occur that would make the loan riskier, what would those be, and then they would try to analyze scenarios.

ZAC PRINCE: Sure. Based on what they thought would create potential risk for the loans.

ZAC PRINCE: I see it.

ZAC PRINCE: Yes.

ZAC PRINCE: FTT was the FTX exchange token. So my understanding and our team's understanding of the FTT token was that it was -- I think somewhere else on this doc that we have up here it talks it being an equity-like instrument. And the reason that the team would have said that is that the way the FTT token -- the way we understood the FTT token to work was that a portion of the profits made, that the FTX exchange made, would be used to buy FTT tokens on the open market, and that model of exchanged profits buying the token was something that was not unfamiliar in the cryptocurrency market more broadly at the time because of a different exchange. Binance had a token, BNB, which was designed directionally the same way, and BNB had been one of the best performing -- if we go back to this point in time, 2021, BNB I think had performed better than even Bitcoin over the last one-year period.

ZAC PRINCE: I don't know that I would necessarily describe it as fairly common because out of a hundred exchanges, I don't think more than necessarily half would have this setup. But it wasn't -- we weren't unfamiliar with the concept because there was already an example of another token that had this type of model and done well.

ZAC PRINCE: Yes.

ZAC PRINCE: Just so I understand, when you say considered to be top 10 percent, what are you -- top 10 percent, like by market cap?

ZAC PRINCE: Top 10 percent in market value?

ZAC PRINCE: I wouldn't say with certainty that I viewed it as within the top 10 percent, but it was reputable.

ZAC PRINCE: Yes.

ZAC PRINCE: Yes.

ZAC PRINCE: Yes. I know that was something that was discussed.

ZAC PRINCE: The way I remember referring to top 10 and FTT in that conversation and others that I've had is that I think there was a point in time where FTT was a top 10 cryptocurrency by market cap. And maybe I would have said top 10 percent, but I wasn't trying to be -- I am not trying to be -- I am not trying to say it's not a legitimate currency, but my memory was that I said at some point FTT was even in the top 10 cryptocurrencies by market cap.

ZAC PRINCE: Sure. So market cap is like total value. It's a term that comes from the stock market. If Amazon is a company that's worth $800 billion, that means their enterprise value, their market cap is 800 billion. In the cryptocurrency market there was a ranking of the different cryptocurrencies by market cap, and the way you calculated market cap was by taking the price of the coin that it was trading at times the total number of coins in existence, and then you have the market cap. And there were numerous websites where you could go and see a ranking of the different cryptocurrencies by market cap. Generally, Bitcoin is number one, it's got the largest market cap, and then the subsequent positions move around a bit.

ZAC PRINCE: High -- it was one of the top cryptocurrencies for sure.

ZAC PRINCE: Yes.

ZAC PRINCE: Sure. So wrong-way risk -- I'll try and use an example from the real world to make it simple. Wrong-way risk is a term that is used in risk management parlance to describe getting a type of collateral from a borrower whose performance has an impact on the type of collateral. And the easiest example to think of for this is like making a loan to Apple, the company Apple, and taking their stock as collateral. That transaction would present wrong-way risk because you're lending to Apple and you are taking their stock as collateral. A type of collateral that Apple could post that would not present wrong-way risk would be if they posted U.S. Government bonds. If Apple gave you treasuries as collateral for a loan, that would not present wrong-way risk because how Apple does isn't going to have an impact on how U.S. treasuries do in a super correlated nature. What the risk team is highlighting here is that they believed that there was wrong-way risk present here. It says Alameda enters into a default and all lenders start liquidating FTT collateral. We think it's possible that FTT could drop 60 to 75 percent in a day.

ZAC PRINCE: Correct.

ZAC PRINCE: Yes.

ZAC PRINCE: Sure. It's saying that the sales team is requesting, which would have been -- which would mean that they were getting that request from the client. Internally the sales team is bringing a request that's coming from the client to borrow potentially up to 1 billion gross, which means like total gross lending of 1 billion. The current exposure, which is the second bullet, is 114 million gross. At the time that this credit memo was produced, we had lent $114 million gross to Alameda and the composition of that is the third bullet. We had lent them $50 million worth of USDC, $43 million worth of Ethereum, and $20 million worth of Bitcoin. And against that, next bullet, they had posted 179 million of collateral, 135 million of that collateral was FTT, 35 million of the collateral was SOL, 5 million of USD, and 2.7 million of USDT.

ZAC PRINCE: Yes. They wanted to increase the borrow.

ZAC PRINCE: Correct.

ZAC PRINCE: Correct.

ZAC PRINCE: Yes.

ZAC PRINCE: It means that the amount of collateral that's posted is larger than the loan amount.

ZAC PRINCE: Yes.

ZAC PRINCE: That's correct.

ZAC PRINCE: Yes.

ZAC PRINCE: Yes. We frequently received audited financials from -- I mentioned earlier we worked with traditional trading firms and then crypto-specific trading firms. The traditional firms often had audited balance sheets. Crypto firms, it was much less common to have audited balance sheets because of issues with getting audits as a cryptocurrency firm.

ZAC PRINCE: I would say the majority of balance sheets that we received from cryptocurrency firms were unaudited.

ZAC PRINCE: We always considered the information, and we always relied on the information that we were given by counterparties as being truthful and accurate.

ZAC PRINCE: Yeah. If within the risk policies and procedures of BlockFi, if a decision was made that we would only lend to companies -- it is possible that a decision could have been made that we would only lend to companies with audited financials, sure.

ZAC PRINCE: Yes.

ZAC PRINCE: That was one of the bullets on the first page.

ZAC PRINCE: Yes.

ZAC PRINCE: For me personally, as a nonaccountant and I guess a bigger-picture thinker in most scenarios, I think of them as roughly the same, but I'm also aware that they are not precisely the same if I were an accountant.

ZAC PRINCE: Yes.

ZAC PRINCE: I'm not sure, off the top of my head, what my understanding was of it at the point in time that we received this balance sheet, but there is a four there, so I would imagine there is a footnote somewhere.

ZAC PRINCE: Yeah, I mean, they were representing it as crypto, you know, the crypto——crypto held.

ZAC PRINCE: Well, there were some cryptocurrencies that were broken out, but I think——the assumption is, looking at this, that any cryptocurrency that was not broken out on a subsequent line item would have been included in the Crypto Held line item.

ZAC PRINCE: Yeah, and there were times, you know, where our team did ask and received information or, you know, representations about what constituted certain line items.

ZAC PRINCE: So there's a——there's a concept with cryptocurrencies where they can either be locked or unlocked. So think of it——an example from the traditional world would be, let's say you go work at a company and that company, as part of the compensation that they offer to employees, grants some shares or, you know, equity in the company. Most of the time when you receive that equity in the company, it has a vesting agreement or some type of structure where you get, you know, a certain amount of the equity after you've worked at the company for a year, a certain amount after two years, etc. This locked and unlocked concept in crypto was——was similar to that. So, you know, protocols would give their employees tokens or, you know, use tokens to pay for services that the cryptocurrency protocol was using, and sometimes those tokens that they were giving out to employees or others would be locked, which basically meant that the receiver of them was not going to be able to access or sell them until the end of that locked period of time. So what unlocked would mean here is that these were tokens that were not subject to any restrictions and that they were free to be sold or otherwise utilized.

ZAC PRINCE: Well——well, my——so these——where it says——

ZAC PRINCE: My understanding, you know, just based on what we've looked at right now, is that the line items below Crypto Held are calling out specific cryptocurrencies, and they're reflecting unlocked amounts. Crypto Held is a line item for any other cryptocurrency that's an asset of Alameda that is not listed with its own line, and then the footnote 4 was making a representation that basically the vast majority, almost the entirety of this Crypto Held line item was unlocked tokens, because if I'm remembering our reading of——of bullet——of footnote 4, it said there's a de minimis amount of locked tokens in this Crypto Held line.

ZAC PRINCE: Correct, that's my understanding.

ZAC PRINCE: Correct.

ZAC PRINCE: Sure. So what that meant was that for the folks writing this report, they did not——they were not able to approve, under——at their level of authority, within our risk management policies and procedures, they were not able to approve this transaction. It also probably meant that there wasn't a clear box that the transaction fit into in our risk framework at the time, so there would be this exception process, and what the exception process basically meant is that the executive team and oftentimes also the board risk committee would look at certain scenarios and they would look at the scenario and say, okay, is this something we should do or not do, and to the extent that a scenario that came up for exception approval happened multiple times, sometimes decisions would be made to adjust our overarching risk framework to increase certain types of activity or decrease certain types of activity.

ZAC PRINCE: That's one of the reasons, yes.

ZAC PRINCE: Correct.

ZAC PRINCE: Well, ultimately exceptions would go all the way up to the——we had a committee that was called BARC. It stood for Board Audit and Risk Committee. And that was a board level committee.

ZAC PRINCE: I think——I was certainly always at the meetings. Depending on the time frame, I think there were times where I was an official member and times where I was just like an attending observer, but——

ZAC PRINCE: I was always there and I always had a voice.

ZAC PRINCE: Absolutely.

ZAC PRINCE: Yes.

ZAC PRINCE: Sure. Volatile collateral, I mean, volatility is a term used to refer to how much the price of a——of an asset, you know, moves. So an asset that is volatile, you know, goes up or down in price in larger percentages than an asset that is, you know, less volatile.

ZAC PRINCE: Yeah. I mean, in general, cryptocurrency——I would say the cryptocurrency asset class as a whole was a——is a volatile asset class.

ZAC PRINCE: Yeah. Just to——just to read it for folks, "FTT/SRM collateral is illiquid relative to major coins. FTT ADV roughly 60 million on each of Binance and FTX." That means FTT is the coin, ADV is the average daily volume, so what they're saying here is that FTT is trading roughly 60 million per day on Binance and FTX, while trading can support only 25 million per day. And the reason they would say that is, you know, the certain asset trades a certain amount on an exchange per day, and you're just one buyer or seller of that asset. You never want to assume that you can have all of that volume for yourself. You're only going to be able to get a portion of it.

ZAC PRINCE: Yes, I believe that's——that's exactly correct, your Honor. It's price, price and, you know, the time component of how fast is it moving.

ZAC PRINCE: Yeah.

ZAC PRINCE: Sure. So, you know, a credit limit——a credit limit was a——an amount of exposure that within our risk framework BlockFi was willing to take to a certain category, you know, certain classification of counterparty at a——at a point in time. So, you know, if a counterparty was Tier 1——just using super simple examples, if they were Tier 1, we might have a credit exposure of a hundred million; if they were Tier 3, which was a lower-credit-quality tier, we would have a lower credit exposure maximum of maybe 10 million. Not saying those are the actual numbers, but——

ZAC PRINCE: So what it says here is, "Our current limit for crypto native funds Tier 1C is 45 million. A proxy for crypto native exchanges is 100 million limit. [Note: Underwriting hasn't done a credit assessment of FTX yet, as FTX is not a borrower themselves.]" One thing I would just point out here, if I may, about how this exposure works, the amount of exposure, you know——when BlockFi is talking about exposure, the amount of exposure it has could be an amount of exposure where we don't have any collateral, and in that case it's really easy to calculate. If we lent someone $50 million and they didn't give us any collateral, our exposure is $50 million. The calculation of how much exposure we had when someone was posting collateral was a bit more complex of an exercise. So if we lent someone $50 million and they gave us a hundred million dollars of collateral, you could say, oh, well, our exposure is 0. The loan is overcollateralized. But our risk team, you know——a lot of what you're seeing here is that they would do analyses to try and estimate some level of exposure even in scenarios where the loans were overcollateralized, and so——

ZAC PRINCE: Yeah. I mean, I think they're——they're raising this and saying this is something that could be——that should be considered for exception approval.

ZAC PRINCE: Yes.

ZAC PRINCE: Sure. So this request is for a 10K so 10,000 Bitcoin loan, which at the time was worth roughly 470 million, with 110 percent FTT/SRM collateral with a 100 percent margin call level, no liquidation trigger, open term. Next bullet, our current exposure was that we had lent them 267 million of gross, so the——here's why I brought up the exposure. You start to see a little bit of a nuance. Our gross exposure was 267 million but 0 net, which means the 267 million of lending was overcollateralized. That 267 million was 200 million of USDC, 45 million of ETH, and 21 million of BTC. I can keep going if you want.

ZAC PRINCE: Yes. So we——we've increased from the other credit memo that I just looked at.

ZAC PRINCE: Correct.

ZAC PRINCE: Well, this specific request is asking for a new loan of approximately 470 million and the current loan size was 267, so it doesn't get you all the way up to a billion, but you're at 730 million.

ZAC PRINCE: Yeah. Without reading it word for word, it looks like it's the same ones.

ZAC PRINCE: I do.

ZAC PRINCE: I see that.

ZAC PRINCE: A part of the risk management team that produced this memo was saying that. I wouldn't——that wasn't the whole team's view, but the authors of this, that was their view, at the time.

ZAC PRINCE: Correct.

ZAC PRINCE: Correct.

ZAC PRINCE: This loan; no, this loan did not get made.

ZAC PRINCE: Additional loans were made, but I think there's——there's two important things about those that I'd like to highlight, if I can.

ZAC PRINCE: One is that if we go to the——back to the beginning of this doc, the, you know, the request that's being discussed in this credit memo is with 110 percent collateralization level. So if we lent them a hundred dollars, they would post 110 worth of collateral. The incremental loans that got made were at much higher collateral levels than that. So the amount of collateral that we required them to post as we were increasing the lending was substantially higher than what's talked about in this credit memo.

ZAC PRINCE: Additionally——

ZAC PRINCE: ——the other point I wanted to make was that the loans at this time that were made were all paid back, in June of 2022.

ZAC PRINCE: Yeah, I think it's——that's——that's fair to say. It's also fair to say that it——I think you're——I think you're not running a good risk organization if you don't facilitate——if you don't have disagreements. If you're not having any disagreements, then people aren't talking about things. So, you know, there were times where people had different views at all different levels of the decision matrix, and those views were, you know, discussed and evaluated and decisions were made.

ZAC PRINCE: Sure.

ZAC PRINCE: Yes.

ZAC PRINCE: No. I already——I already told you what happened here. What happened here is, this credit memo is——is for a loan with 110 percent collateral. That loan was not made.

ZAC PRINCE: 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.

ZAC PRINCE: Based on what I'm seeing, I believe it is.

ZAC PRINCE: I mean——

ZAC PRINCE: Assuming this is, you know, the loan agreement that was provided through to, you know, in discovery by our legal teams, then yes, I'm comfortable saying.

ZAC PRINCE: Sure. So we would frequently enter into master loan agreements with institutional counterparties, and the master loan agreement would be like a——like an overarching agreement that would govern all of the subsequent transactions which could typically be done with much shorter agreements. So you'd have this master loan agreement, which was a universal agreement, and then let's say an institutional counterparty did, you know, ten loans throughout the course of the year; each of those subsequent loans would have, you know, either a, like a one-page term sheet that got signed or a trade confirm or something else, but it basically was a master agreement that enabled you to do ongoing transactions with a counterparty with——without having to do a big agreement every time you wanted to do one incremental loan.

ZAC PRINCE: That's right.

ZAC PRINCE: David Olsson was a senior vice president on our institutional——our institutional client coverage team.

ZAC PRINCE: Yes, I see that.

ZAC PRINCE: Yeah. I mean, it seems like this——without having read this whole thing, the——this is the section of the agreement where it's talking about the procedure for getting a new loan within the master loan agreement.

ZAC PRINCE: I assume you're referring to like testimony here?

ZAC PRINCE: Yeah, I do.

ZAC PRINCE: Yeah, I mentioned that in November there was a——a pledge, additional pledges of collateral to BlockFi and that part of that additional collateral that was pledged in November included Robinhood shares.

ZAC PRINCE: Correct.

ZAC PRINCE: I'm not——I'm not sure, you know, I——I don't believe that I, at the time that the Robinhood shares were pledged, understood some of the nuance that I've now become aware of in terms of what entity the Robinhood shares were held in. That being said——

ZAC PRINCE: My recollection at the time was that Alameda was posting shares to secure the loans that BlockFi had made to it.

ZAC PRINCE: At——my understanding was that it was, you know, Caroline who signed the doc but at Sam's instruction, so I was messaging and emailing with Sam at the time.

ZAC PRINCE: Yes.

ZAC PRINCE: Yes.

ZAC PRINCE: BlockFi made——BlockFi made the decision that we were interested in bringing additional capital into the business, and that we thought if there was an option to do that, that that would be the right thing to do for the business. So, you know, we ran——we ran a process where we reached out to investors, you know, other crypto firms to see what capital we could potentially raise and at what terms.

ZAC PRINCE: I think that——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, and part of the job of CEO I think is to be evaluating decisions that you're making within the context of the spectrum of things that could happen to a company.

ZAC PRINCE: Well, we certainly had——we certainly had a lot of eyes, very capable, professionals inside and outside the firm that were looking at the company's position, and there was never, you know——we always viewed the business as being solvent and operational, and in fact, throughout that period of time, we operated the same as we had in less volatile market times.

ZAC PRINCE: That's correct.

ZAC PRINCE: 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 to not do the transaction.

ZAC PRINCE: Yes, we evaluated other options.

ZAC PRINCE: We looked at the entirety of it, of the transaction. So there was a loan component to the transaction and there was a acquisition component to the transaction.

ZAC PRINCE: Well, you know, what it's saying is that the loan——making a loan to Alameda with FTT collateral, in our——in our team's view, presented a wrong way risk. That transaction had wrong way risk associated with it.

ZAC PRINCE: Well, what we were contemplating here was loans to Alameda.

ZAC PRINCE: Well, you're always——in general, when you're taking collateral for a loan, you're trying to reduce your risk associated with that loan, and so the more collateral you take, the less risk you have, generally speaking.

ZAC PRINCE: I'm sorry, Nick. Could you say the question again, please.

ZAC PRINCE: Sure. Well, I mean, the——once——once our view became that the Alameda loans and assets that we had at FTX weren't going to be either repaid or accessible, then we did not have a view that the business was solvent and therefore we engaged with professionals and proceeded towards a bankruptcy filing.

ZAC PRINCE: I don't——I mean, let me try and say it a different way. I just want to be careful with——with language. If——I don't think BlockFi would have filed for bankruptcy in November of 2022 if the Alameda loans were still in good standing and the funds we had at FTX were accessible. I do not think, in a scenario where those two things were not impaired, that the company would have needed to file for bankruptcy.