The trial of former FTX CEO Sam Bankman-Fried is underway, with a series of explosive revelations coming in the form of testimony from key former FTX and Alameda Research executives.
Former Alameda CEO Carolyn Ellison testified for a third day in the latest court proceedings on Oct. 12, before jurors received evidence of a meeting she held with Alameda employees on Nov. 9, 2022. recording, just days before the company folded. FTX Empire.
The meeting, held in Hong Kong and attended by nearly half of Alameda’s staff, was a key moment for Allison to open up to colleagues about the current state of cryptocurrency trading. The admission was accompanied by explosive revelations about Alameda’s financial ties to FTX. Cointelegraph has gained access to the secret recording, and we’ve compiled a list of four striking elements it revealed.
Bad investments in Alameda lead to financial crisis for FTX
The first and most critical revelation came early in the meeting, when Allison revealed that Alameda had borrowed money from FTX for a year. She acknowledged that Alameda made several illiquid investments using borrowed funds.
As a result of the market downturn, Alameda’s loan positions were called in, leaving a shortfall on FTX’s balance sheet. Here are excerpts from the discussion:
“Most of the loans in Alameda were called in to satisfy those loan calls. We ended up borrowing a bunch of money at FTX, which caused FTX to be short of user funds. So once people started getting scared about this, Users then start withdrawing funds.”
Ellison revealed that Alameda’s bad loans triggered market panic around FTX, causing users to withdraw their funds. FTX then suspended withdrawals to control the situation, and within days the exchange collapsed.
FTX plans to raise more funds to compensate users
When an employee at the meeting asked Allison how FTX planned to repay customers, Allison said the cryptocurrency exchange was planning to raise more capital to fill the gap.
“Basically, FTX was trying to raise money to make this happen (compensate users), but yeah, after the crash, no one wanted to invest. Obviously, looking back now, I don’t know how to wait a few months and hope for market conditions Plan to get better and then raise rates.”
During Thursday’s court proceedings, Christian Drappi, a former Alameda software engineer who attended the meeting, told the court that Ellison’s response about paying back clients sounded concerning to him because he didn’t know about the investment A situation in which investors contribute to a situation where customers suffer as a result of a company’s poor financial decisions.
nervous laughter
When the secret recording was played in court, the former Alameda employee also noted that Ellison giggled during the meeting. The employee said it was Allison’s “nervous laugh,” which she often does in difficult situations.
related: Caroline Ellison claims Changpeng Zhao’s tweets ‘contributed’ to FTX collapse
When Allison was asked by a staff member at the meeting about her idea of using FTX client money to cover Alameda’s loan losses, she responded, “Well, Sam, I guess,” and chuckled. .
Alameda can almost always deposit and withdraw FTX users’ funds
Another staff member asked about Alameda’s backdoor access to FTX and asked how long Alameda had been using FTX customers’ funds to cover holes in its balance sheet. Allison responded, “As far as I know, FTX has basically been allowing Alameda to borrow user funds.”
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