On the morning of November 6, Nishad Singh, a senior executive at cryptocurrency exchange FTX, sent a message in a group chat with two senior colleagues. Clients were rushing to withdraw funds from the exchange, he wrote. In the last day, they had tried to withdraw $1.25 billion from the platform and in the last hour $120 million in withdrawal requests had arrived.
Caroline Ellison, who ran FTX’s sister hedge fund Alameda Research, responded with an image of a sad face. Sam Bankman-Fried, founder of FTX, responded with a single word: “Ugh.”
Less than a year later, Bankman-Fried, 31, is on trial in federal court in Manhattan, fighting criminal charges that he stole more than $8 billion from FTX clients. The company is bankrupt and Singh and Ellison, both 28, pleaded guilty to fraud and testified in court against their former friend.
At trial, prosecutors used that testimony as the basis for an unvarnished look at FTX’s rapid unraveling — a frenetic week in November that ended in one of the biggest corporate collapses in recent history. Over dozens of hours, the government has built the most complete picture to date of FTX’s final days, based on witness accounts, texts and other communications. Prosecutors have even drawn up a November calendar to help jurors follow the rapid sequence of events.
While the broad contours of FTX’s failure are public knowledge, the trial has opened a window into high-stakes conversations that took place in secret at Bankman-Fried’s headquarters in the Bahamas. Witness accounts of those behind-the-scenes discussions have led to some of the trial’s most emotional moments.
In her testimony, Ms. Ellison choked back tears as she called FTX’s collapse “the worst week of my life.” Singh was under such “severe emotional distress,” she said, that she became suicidal, as “a crazy blame game” raged around her.
Along with Ms. Ellison and Mr. Singh, a third senior FTX executive, Gary Wang, pleaded guilty and testified for the prosecution. Bankman-Fried has pleaded not guilty to seven counts of fraud and conspiracy and faces what could amount to a life sentence if he is convicted. A spokesman for his legal team, Mark Botnick, declined to comment.
FTX began to skyrocket the first weekend of November when Changpeng Zhao, the founder of the giant crypto exchange Binance, Announced that he was selling a large amount of a digital currency created by Bankman-Fried that served as a sort of proxy for FTX stock. Mr. Zhao cited an article on cryptocurrency news site CoinDesk that showed problems with Alameda’s finances. His promise to sell FTX’s internal currency, FTT, was a sign that crypto-empire-blur-on-his-trading-titan-alamedas-balance-sheet/” title=”” rel=”noopener noreferrer” target=”_blank”>the exchange was in serious trouble.
Ellison was on vacation in Japan when the crisis began. She became concerned immediately, she said on the witness stand. For years, Alameda had borrowed billions of dollars from FTX clients to finance lavish spending, leaving a gaping hole in the exchange’s accounts.
Within FTX, top executives debated how to respond to Zhao, an old rival. Company leaders considered posting a message on Twitter accusing Mr. Zhao of spreading unfounded rumors, or “fear, uncertainty and doubt” in crypto parlance. But an early draft written by Bankman-Fried – “Heh, I see *someone* is really trying to trick us this month” – seemed too obviously ghostwritten, Ms. Ellison testified.
After a few rounds of revisions, she published a post on Twitter in his own voice defending Alameda, then followed with a promise buy the ITF from Mr. Zhao.
The publication did little to quell the growing panic. On the morning of Nov. 6, Singh texted Ellison and Bankman-Fried about the increasing withdrawals in a group chat that prosecutors presented to the jury. He warned that “ftx processing is not fast enough even if you had the funds.”
That night, Singh knocked on the door to Wang’s bedroom in the penthouse they shared in Albany, a luxury apartment complex on the Bahamian island of New Providence. They discussed FTX withdrawals, Mr. Wang testified. Wang said he had done some calculations and was pleasantly surprised to discover that FTX had sufficient funds to pay its clients.
But when he shared the news with Bankman-Fried, he recalled, the FTX founder urged him to look closer, asking, “Are you including our Korean friend?”
Bankman-Fried was referring to a mysteriously labeled account at FTX where he had transferred debt Alameda owed to clients. The account showed that $8 billion was missing, Mr. Wang testified.
On the morning of November 8, Bankman-Fried announced a rescue plan for FTX: Binance was going to take over the exchange. In an Alameda office in Hong Kong, Christian Drappi, a software engineer, heard the news from a colleague, who swore.
“I was completely shocked,” Mr. Drappi testified, as a prosecution witness.
The deal with Binance collapsed the next day. Behind the scenes, more than a dozen top FTX officials, including Singh, Wang, Ellison and Bankman-Fried’s father, Joe Bankman, exchanged frantic text messages in a thread on the Signal messaging app, a kind of chat room. of digital warfare titled “small group chat.”
There were occasional moments of levity, according to screenshots prosecutors showed in court. Ryan Salame, an FTX executive, posted a link to a Twitter post from an account called MoonOverlord, which expressed hope that customers who refused to withdraw their savings from FTX would receive free money as a reward.
“Haha,” Mr. Salame wrote. Bankman-Fried quickly retweeted MoonOverlord’s message.
As withdrawals increased, Bankman-Fried looked for other sources of funding to keep FTX afloat. In a Google document that prosecutors showed in court, he compiled a list of potential sponsors, including Facebook co-founder Dustin Moskovitz, high-frequency trading firm Jane Street and the Saudi Arabian Public Investment Fund.
But it was too late.
As panic grew, one of FTX’s in-house lawyers, Can Sun, reviewed a spreadsheet showing that the exchange would not be able to honor customer withdrawals. On the witness stand, Sun recalled asking Bankman-Fried and Singh to explain elements of the spreadsheet. Mr. Singh’s face was pale, Sun recalled, and “it looked as if his entire soul had been taken away from him.”
“Nobody was responding,” Mr. Sun testified.
That night, Mr. Sun went for a walk with Mr. Bankman-Fried at the Albany. Bankman-Fried wanted to know if Alameda could present any legal justification for borrowing funds from FTX clients. Sun looked at some theoretical options, but nothing was supported “by the facts,” he testified.
“Sam basically said something like, ‘Got it,’” Mr. Sun said. “He wasn’t surprised at all.”
A couple of nights later, Ellison called a staff meeting at Alameda’s office in Hong Kong, where he had settled in after his vacation. He gathered about 15 Alameda employees in a circle, according to Mr. Drappi’s testimony. Sitting on a beanbag, she laughed nervously as she explained how FTX had collapsed.
Since FTX was founded, he said, Alameda had tapped into the exchange’s customer deposits to fund all types of expenses. The comments were captured on an audio recording that prosecutors played in court.
“Who made the decision about the use of user deposits?” asked an Alameda employee.
“Umm,” Mrs. Ellison responded. “Sam, I guess.”
Back in the Bahamas, Singh struggled to cope. In a message to Bankman-Fried that prosecutors filed in court, he said FTX executives were increasingly angry with him and the rest of the company’s leaders.
“FWIW, I don’t hate the idea of them being mad at me,” Bankman-Fried responded. “It might help them move forward.”
By the time FTX filed for bankruptcy on November 11, most of Bankman-Fried’s allies had abandoned him. Mr. Singh flew to his family in the San Francisco Bay Area. Ms. Ellison retreated to a family home in the northeastern United States, where she was staying with her boyfriend, when the Federal Bureau of Investigation showed up with a search warrant in mid-November.
Wang was the last member of Bankman-Fried’s inner circle to leave the Bahamas, flying back to the United States on November 16.
The next day, Wang said, he met with prosecutors.
J. Eduardo Moreno contributed with reports.
