Secret recording offers many explosive revelations
The ongoing trial by former FTX CEO Sam Bankman-Fried has uncovered a series of explosive testimonies from former key FTX and Alameda research executives.
Former Alameda CEO Caroline Ellison testified for a third day on Oct. 12, after a jury was presented with testimony about a meeting she held with Alameda employees on Nov. 9, 2022, just days before the collapse. The FTX Empire.
The meeting, held in Hong Kong and attended by about half of Alameda's staff, was a key moment when Ellison came clean with her colleagues about the future of the crypto exchange. This admission was accompanied by explosive revelations about Alameda's financial ties to FTX. Cointelegraph managed to obtain a copy of the cipher, and we've compiled a list of the four surprising elements it reveals.
Alameda's bad investments led to a financial crisis at FTX
The first and most crucial revelation came early in the meeting when Ellison Alameda revealed that he had borrowed money from FTX for a year. Alameda admitted to making several illegal investments using borrowed funds.
Alameda's loan positions were called due to the market downturn, which created a deficit on FTX's balance sheet. Here is an excerpt from the conversation.
“Most of Alameda's loans are called to meet those loan notes. We ended up borrowing a lot of funds from FTX, which caused FTX to experience a shortage of user funds. And so, once it started to become like FUD about this and users started spending money.
Ellison said Alameda's bad credit created market panic in the FTX area, prompting consumers to withdraw their funds. FTX then paused withdrawals to contain the situation, and the exchange crashed within days.
FTX plans to raise more money to compensate users
When one of the employees at the meeting asked Ellison how FTX planned to pay its customers, Ellison said that the crypto exchange planned to raise more funds to fill the gap.
“Essentially, FTX is trying to scale up to do just that. [compensate users], but yes, no one wanted to invest after the disaster. A plan to wait for several months and want the market to improve and then go higher, clearly, I have never looked back.
At Thursday's court hearing, Christian Drapey, a software engineer in Alameda, who was present during the meeting, told the court that Ellison's response about paying clients appeared to concern him because he did not know the circumstances of the investors' contributions. To make customers whole because of the company's bad financial decisions.
Nervous laughter
When the secret recording was played in court, the former Alameda employee indicated that Ellison laughed at the meeting. The employee pointed out that it was Ellison's “nervous laugh,” which she often did when she was in a tight spot.
Related: Changpeng Zhao's tweet ‘contributed' to FTX collapse, says Carolyn Ellison
When Ellison was asked by an employee at the meeting whose idea it was to attach Alameda's loan loss to FTX's client funds, she replied, “Um, Sam, I guess,” and laughed.
Alameda almost always had to get the user's money through FTX
Another employee asked about Alameda's backdoor access to FTX and how often Alameda used FTX customers' money to plug holes in its accounts. Ellison replied, “FTX basically allows Alameda to borrow the user's money as far as I know.
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