The ongoing trial of former FTX CEO Sam Bankman-Fried has uncovered a series of explosive revelations in the form of testimony from former key FTX and Alameda Research executives.
In the latest court proceeding on October 12, former Alameda CEO Caroline Ellison testified for a third day, after which the jury was presented with a recording of a meeting she had with Alameda staff on November 9, 2022. , just days before the collapse of the FTX empire.
The meeting, held in Hong Kong and attended by almost half of Alameda employees, was the key moment when Ellison clarified the current scenario with the crypto exchange to his colleagues. This admission was accompanied by explosive revelations about Alameda’s financial relationship with FTX. Cointelegraph gained access to the secret recording and we have curated a list of four surprising items he revealed.
Alameda’s bad investments caused the financial crisis at FTX
The first and most crucial revelation came early in the meeting, when Ellison revealed that Alameda had borrowed money from FTX for a year. He admitted that Alameda had made several illiquid investments using borrowed funds.
Due to the market crisis, Alameda’s credit positions were revoked, resulting in a deficit on FTX’s balance sheet. Here is an excerpt from the discussion:
“The majority of Alameda’s loans were requested to satisfy those loan withdrawals. We ended up borrowing a large amount of funds on FTX, which led to FTX having a shortfall in user funds. And so it was, once there started to be FUD about this and users started withdrawing funds.”
Ellison revealed that Alameda’s bad loans created market panic around FTX, causing users to withdraw their funds. FTX then stopped withdrawals to contain the situation and the exchange collapsed within days.
FTX planned to raise more funds to compensate users
When one of the employees attending the meeting asked Ellison how FTX intended to pay its clients, Ellison said that the crypto exchange planned to raise more funds to fill the gap.
“Basically, FTX is trying to raise money to do this (compensate users), but yeah, after the crash, no one wanted to invest. Obviously, in hindsight, I don’t know the plan to wait for several months and hope that the market environment improves and then goes up.”
During Thursday’s court proceeding, Christian Drappi, a former Alameda software engineer who was present during the meeting, told the court that he found Ellison’s response about paying customers concerning because he was not aware of a scenario in which that investors would have contributed. to compensate customers due to poor financial decisions by the company.
The nervous laugh
As the secret recording played in court, the former Alameda employee also noted that Ellison had laughed during the meeting. The employee suggested it was Ellison’s “nervous laughter,” something he often did when he found himself in a difficult situation.
Related: Changpeng Zhao’s tweet ‘contributed’ to FTX collapse, claims Caroline Ellison
When a staff member at the meeting asked Ellison what the idea was about covering Alameda’s credit losses with money from FTX customers, she responded, “Um, Sam, I guess,” and laughed.
Alameda almost always had access to user funds on FTX
Another staffer asked about Alameda’s backdoor access to FTX and asked how long Alameda had been using FTX customer funds to plug holes in its balance sheet. Ellison responded: “FTX has basically always allowed Alameda to borrow funds from users, as far as I know.”
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