On November 9, just two days before cryptocurrency exchange FTX declared bankruptcy, almost all 30 employees of Alameda Research gathered at the cryptocurrency hedge fund’s Hong Kong offices.
“I guess I’m going to say something first,” former Alameda CEO Carolyn Ellison said at the beginning of the biweekly “all hands” meeting. According to audio secretly recorded by an employee who had just been hired three days earlier, she went on to tell employees how Alameda and FTX founder Sam Bankman-Fried used FTX client funds to repay loans.
The government introduced excerpts of the muffled recording during its questioning of former Alameda employee Christian Drappi, who provided a copy of the audio to prosecutors. The clips were the most graphic evidence to surface Thursday and stood in stark contrast to the taciturn testimony that Bankman-Fried’s attorneys gave throughout the morning and much of the afternoon in their cross-examination of Ellison.
After the defense concluded its cross-examination of Allison Thursday afternoon, the government called Drappi, who had been a developer in Alameda for more than a year, to the witness stand.
Prior to November, Drappi was unaware of Bankman-Fried’s alleged conspiracy to withdraw client funds from FTX and conduct risky investments, loan repayments and risky cryptocurrency bets through Alameda.The situation changed on November 8 around 11 p.m.
In the Hong Kong office, Drappi’s colleague Tony Qi was browsing Twitter (now X) and saw a tweet from Bankman-Fried (now published) announcing “strategic transaction with Binance for FTX.com” . Qian asked Allison, who was standing next to Drappi and Qian, whether Bankman-Fried’s statement was true. Allison confirmed this, explaining that this was due to a shortfall in user funds that FTX had withdrawn from Alameda to repay billions of dollars in loans. “I was completely shocked,” Drappi testified.
“Borrowed a large sum of money”
The next day, during a regular biweekly meeting with Alameda’s entire staff, Allison came clean. Reports of this “all-hands meeting”—a key episode in FTX’s downfall—were widely reported. Yet Allison sounded quiet and matter-of-fact as she detailed the fraud prosecutors allege, and her recording is the most detailed yet.
Drappy said Allison looked “sunken and listless” while sitting in a bean bag chair. After a brief opening statement, she relayed the crux of the problem to her colleagues: “Alameda borrowed a large amount of money to make illiquid investments,” she said. “We ended up borrowing a large amount of money from FTX.”
Inevitably, staff members will have questions, including Drappy. He asked Ellison who else at Alameda or FTX was aware of customer funds being withdrawn from the exchange, according to audio recorded by Rick Best, an Alameda employee who had joined the company three days earlier. Ellison initially dodged the question, but Drappi countered and asked who knew for sure. “I’m sure this isn’t a YOLO thing, right?” he added.
Allison found that Bankman-Fried, she, Gary Wang and Nishad Singh – the latter three of whom agreed to plea deals – all knew. Who said you need to use FTX client funds? She smiled nervously and replied, “Um…Sam, I guess?”
Svlook
