Former Alameda CEO Details FTX's Collapse and Bankman-Fried's Strategies in Court Testimony
Summary:
The article details the courtroom testimony of former Alameda Research CEO, Caroline Ellison, concerning the collapse of cryptocurrency exchange FTX. Before FTX's downfall, its former CEO, Sam Bankman-Fried, was engaged in buying Snapchat shares, raising funds from Saudi investors, and encouraging regulatory action against rival exchange Binance. Bankman-Fried examined the closure of Alameda and raising $1 billion in capital from Saudi royalty following a significant crash in the Terra ecosystem. He blamed Ellison for Alameda’s operational troubles and inadequate hedging. Ellison revealed creating "alternative" spreadsheets that underplayed Alameda's financial responsibilities towards FTX to improve the company's financial image and prevent lenders from demanding complete repayment.
Prior to the downfall of cryptocurrency exchange FTX, its ex-CEO Sam Bankman-Fried was reportedly concerned with the situations at Alameda, purchasing Snapchat shares, amassing funding from Saudi investors, and pushing for stricter regulatory measures against competitor exchange Binance. This was disclosed in the personal writings of former Alameda Research CEO Caroline Ellison, which were presented by prosecutors during her testimony in New York. Throughout her court session, Ellison shared that a significant collapse in the Terra ecosystem in May 2022 led Bankman-Fried to contemplate shutting down Alameda and procuring $1 billion in investment from a Saudi Prince known for supporting blockchain gaming through Saudi Arabia's sovereign wealth fund. Ellison stated that another objective of Bankman-Fried from a year back was pressing for regulatory scrutiny of Binance in an effort to expand FTX’s market share, although she did not divulge how he intended to make this move.
Furthermore, Bankman-Fried was pursuing additional financing from cryptocurrency lending platform BlockFi, who had priorly extended over $660 million to Alameda, as per Ellison. Other key issues for Bankman-Fried included engaging in trade of Japanese government-issued bonds, snapping up Snap Inc (SNAP) stocks, and ensuring someone named "Willie" was content. "Willie" possibly denoted Bankman-Fried's mentor William MacAskill. Bankman-Fried held Ellison responsible for Alameda’s tribulations and ineffective hedging, Ellison confessed. Despite conceding that an optimized hedge approach could have potentially buffered Alameda against the 'crypto winter', Ellison pointed out that Alameda was also juggling substantial open-ended loans and had drawn heavily on its FTX line of credit.
By the summer, lenders like Genesis Capital started invoking their call option, pressing Alameda into paying back millions. Bankman-Fried then instructed Ellison to pay a portion of Alameda's debts with capital sourced from FTX users. As of September 2022, Alameda's FTX liabilities stood at $13.7 billion, with its open-ended loans amounting to $1.3 billion, according to Ellison. Further, under Bankman-Fried's directive, Ellison reportedly devised "alternative" spreadsheets that masked Alameda's financial obligations to FTX, this was done in order to confer a healthier fiscal profile, deterring lenders from calling in their full repayment. Amid these financial pressures, Ellison confessed instances of personal discomfort brought about by concerns over users withdrawing their funds from FTX given Alameda's 'liquidity squeeze'. Bankman-Fried's defense will cross-examine Ellison on Oct. 12.
Published At
10/12/2023 12:17:40 AM
Disclaimer: Algoine does not endorse any content or product on this page. Readers should conduct their own research before taking any actions related to the asset, company, or any information in this article and assume full responsibility for their decisions. This article should not be considered as investment advice. Our news is prepared with AI support.
Do you suspect this content may be misleading, incomplete, or inappropriate in any way, requiring modification or removal?
We appreciate your report.