Ellison Reveals Mismanagement and Manipulation Behind FTX Collapse During Bankman-Fried's Trial
Summary:
During Bankman-Fried's trial, Caroline Ellison confessed her consideration to leave Alameda and admitted to mismanagement. Her relationship with Bankman-Fried deteriorated by the time their crypto empire fell, following their personal split. She continued as CEO despite growing concerns about Alameda's financial health. As CEO, she managed crypto lenders following the Terra ecosystem collapse in 2022, which led to a rise in loans and a decrease in market liquidity. FTX's customer assets were employed to repay loans amid repayment pressures, leading to the creation of false balance sheets to mislead creditors. The resulting leak of an alternative balance sheet, along with rumors, led to a noticeable $8 billion deficit between the companies. Ellison is now cooperating with Department of Justice and awaits a sentence on fraud charges.
During Bankman-Fried's trial this week, Ellison devoted over a decade to offering her testimony, remarkably entering via the main entrance of the federal courthouse in Manhattan flanked by her legal team. Ellison revealed that she hadn't crossed paths with Bankman-Fried since the crash of the crypto conglomerate in November the previous year. Moreover, their interaction had faltered months before this debacle. Their romantic affiliation terminated in April 2022, with Caroline actively absconding from spending time with Bankman-Fried, despite being co-residents in a luxury Bahamian apartment. She started considering exiting Alameda associated with the surge in obligations towards FTX and the personal split. "In retrospect, neither Trabucco nor myself were committed enough to provoking changes," she noted in a record directed to Bankman-Fried, exhibited as testimony during her counter-analysis by his legal representative.
When she contemplated leaving, Bankman-Fried beseeched her to stay due to potential stirring of rumors about Alameda's fiscal stability, and the resultant harm to the reputation of FTX. Regardless, Ellison stayed onboard as CEO. Ellison had associated with Alameda as a trader in 2018, and by 2020, she was presiding over numerous operations of the company while Bankman-Fried had shifted his attention towards his new crypto exchange venture, FTX. She was elevated to the position of co-CEO in August 2021, sharing the title with Sam Trabucco, who later resigned and handed over complete control to Ellison, who stated stark opposition to the creation of FTX. Ellison asserted that her ambitions broadened post-joining Alameda, and this was brought about by Bankman-Fried's encouragement. As CEO, her responsibilities included managing Alameda's crypto lenders.
In the wake of the collapse of the Terra ecosystem in mid-2022, Alameda's open-term loans amounted to $1.3 billion. As the market displayed a downward trend, it exhausted liquidity from crypto assets, provoking Alameda's lenders to ask for repayment of loans. According to Ellison, Bankman-Fried instructed her to continue repaying creditors via Alameda's line of credit with FTX, which meant using assets from FTX clients to repay crypto lenders, with the credit line standing at a massive $13 billion. As the pressure built up to repay loans alongside Alameda's financial statements, Bankman-Fried suggested Ellison adopt "alternative methods" in presenting the company's financials. This led Ellison to fabricate multiple versions of the balance sheet over the subsequent months to mislead creditors.
In early November, an alternative version of Alameda's balance sheet got leaked. Ellison had to interrupt her Japanese vacation and head to FTX's Hong Kong office in an attempt to manage the ensuing crisis. This falsely represented data was substantial in propagating rumors and enabling a bank run on FTX just days later, revealing an enormous $8 billion deficit between the firms. Ellison has been working in collaboration with the Department of Justice since December and awaits her sentencing in connection with seven charges of fraud and conspiracy to commit fraud. In 2022, Caroline Ellison confessed her incompetence in leading Alameda Research, which was confirmed by her personal notes disclosing information about the financial company's challenges and its CEO's intent to resign months before FTX's disaster.
Published At
10/13/2023 9:45:00 PM
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