Covert Recording Exposes Alameda Research's Misuse of FTX Funds, Leads to Mass Resignations
Summary:
A covert 75-minute audio recording reveals the moment 15 former Alameda Research employees discovered the hedge fund was misusing funds from cryptocurrency exchange FTX. The revelation by Caroline Ellison occurred in a meeting on November 9, 2022. Portions of the recording were presented in court during Sam Bankman-Fried’s criminal trial. Many employees, including software engineer Christian Drappi, were unaware of the alleged misuse of FTX customer deposits for trading activities. Following the meeting, and the realization of the extent of the relationship between FTX and Alameda, many employees including Drappi resigned.
A clandestine recording lasting 75 minutes of Caroline Ellison has shed light on the precise instant when 15 of Alameda Research's ex-staffers discovered the hedge fund was secretly diverting user funds from cryptocurrency exchange FTX. The comprehensive audio leak, which Cointelegraph managed to get hold of, furnishes fresh perspectives about the intensifying strain experienced by Ellison and her team at Alameda during the turmoil leading to the downfall of FTX.
Ellison, during an extensive meeting with everyone in Hong Kong on November 9, 2022, revealed that Alameda was in essence covertly acquiring significant money through no-fixed-term loans and utilizing them for a variety of illiquid investments like acquiring ample FTX US equity. She further elaborated that a large portion of the loans were called in to meet the recalls, which led to Alameda borrowing a chunk of funds from FTX, subsequently causing a shortfall in the users' funds at FTX.
Ellison also confessed that FTX had always permitted Alameda to use the funds of its users. Excerpts of this covert audio recording were played in front of the court during the 8th day of Sam Bankman-Fried’s criminal trial on October 12, and this was a part of Christian Drappi's testimony, a former Alameda software engineer. Drappi’s session on the witness stand was conducted soon after Ellison’s three-day long extensive deposition.
Prior to this extensive meeting, Drappi and numerous Alameda employees had no clue that the hedge fund was presumably utilizing FTX customer's deposits to support its trading activity. When Drappi asked Ellison in the audio recording about when and who else in the organization was aware of Alameda misappropriating FTX user investments, Ellison hesitated to reply instantaneously. However, while persisting upon seeking an answer, Drappi joked if the decision wasn’t just an impulsive "YOLO" judgement.
This part of the audio instigated a chuckle in the courtroom, as Drappi explained the meaning of the term "YOLO" to everyone present there, and asserted his desire to get confirmation from Ellison about the use of FTX deposits was not an impulsive decision. Drappi, in his deposition, recounted Ellison's demeanor during the meeting as withdrawn and lacking assurance. Drappi expressed shock at knowing about the actual extent of the connection between FTX and Alameda, which led him to resign the very next day.
Aditya Baradwaj, a software engineer at Alameda Research who was also present during the meeting, described the atmosphere of the meeting to Cointelegraph as highly strained. According to him, Ellison unveiled a plethora of new information that had never been discussed internally before, including the subsequently discarded proposal of FTX being bought by Binance, its biggest rival then. Baradwaj added that it became increasingly apparent that the company's future looked grim, prompting everyone to leave the organization immediately.
Published At
10/13/2023 6:00:00 AM
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