The ongoing trial of former FTX CEO Sam Bankman-Fried has revealed a series of explosive revelations in the form of testimony from former key executives of FTX and Alameda Research.
The final court proceedings on October 12 saw former Alameda CEO Caroline Ellison give evidence for a third day, after which the jury was shown a recording of a meeting she had with Alameda employees on November 9, 2022, just days before Alameda collapsed. FTX Empire.
The meeting, which was held in Hong Kong and was joined by nearly half of Alameda’s employees, was the key moment in which Ellison explained to her colleagues the ongoing scenario of cryptocurrency exchanges. This admission was accompanied by a series of surprising revelations about Alameda’s financial relationship with FTX. Cointelegraph gained access to the secret registry and we’ve curated a list of four eye-catching items that were revealed.
Bad Alameda investments led to the financial crisis at FTX
The first and most significant revelation by Ellison came early in the meeting when she revealed that Alameda had been borrowing money from FTX for a year. She admitted that Alameda had made a number of illiquid investments using borrowed funds.
Due to the market contraction, Alameda’s loan positions were called, resulting in a deficit on FTX’s balance sheet. Excerpt from the discussion:
“Most of Alameda’s loans were called in order to meet those loan drawdowns. We ended up borrowing a bunch of money from FDX, which led to FTX being short of user funds. And so, once FUD started popping up around this and users started withdrawing money .
Ellison went on to reveal that Alameda’s bad loans created a market panic around FTX, prompting users to start withdrawing their funds. FTX then temporarily halted withdrawals to contain the situation and within days the exchange collapsed.
FTX plans to raise more money to compensate users
When an employee who attended the meeting asked Ellison how FTX intends to repay its clients, Ellison said the cryptocurrency exchange plans 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 I don’t know, later on, the plan is to wait a few months and want the market environment to improve and then go higher.
During Thursday’s court proceedings, Christian Drape, a former Alameda software engineer who was present during the meeting, told the court that Ellison’s response about reimbursing clients seemed troubling to him because he was unaware of the scenario in which investors contributed to making clients whole because of the company’s poor financial decisions. .
While the secret recording was played in court, the former Alameda employee also noted that Ellison laughed during the meeting. The employee noted that this was Ellison’s “nervous laughter,” which she often did when in an awkward situation.
Related: Caroline Ellison claims Changpeng Zhao’s tweet “contributed” to FTX’s collapse
When an employee at the meeting asked Ellison about his idea of offsetting Alameda’s loan losses with FTX client money, she replied, “I guess, Sam,” and laughed.
Alameda has always had access to user funds at FTX
Another employee inquired about Alameda’s backdoor access to FTX and asked how long Alameda had used FTX client funds to plug holes in its balance sheet. “FTX has always allowed Alameda to borrow user money, as far as I know,” Ellison replied.
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