Former Alameda CEO reveals details of a meeting ahead of the firm’s collapse

On the third day of testimony in court, former head of Alameda Research Caroline Ellison presented a recording of a meeting held several days before the FTX collapse. During the meeting she told employees about a backdoor to client funds of the exchange and illiquid investments, according to Cointelegraph citing court papers.

Bad News

In Alameda’s Hong Kong office on 9 November 2022, nearly half of the company’s staff were present. Primarily, Ellison said the firm had borrowed money from FTX for a year.

Subsequently, Alameda made several ‘ill-fated’ investments with those funds, she added. Because of the ongoing market downturn, the exchange faced a balance-sheet shortfall and, as a consequence, a need to return the borrowed assets.

The resulting situation forced Alameda to borrow additional funds, even from FTX itself, using client deposits. After messages about illiquid investments by the company, users of the partner exchange began panicking and withdrawing funds, which led to the collapse of the trading platform, Ellison explained.

When asked by one of the employees how long Alameda had used client funds from FTX to plug balance-sheet holes, Ellison replied — ‘almost always’.

Compensation plan

To reimburse users, the former Alameda CEO proposed raising additional investments.

‘Essentially, FTX is trying to raise funds, but after the collapse no one wanted to invest. I don\’t know, looking back, the plan was to wait a few months for better market conditions, and then rally,’ she said.

Former Alameda software engineer Christian Drappi noted that Ellison’s reply immediately alarmed him, as neither staff nor clients knew what funds were used for external trades. A day after the meeting, he decided to resign.

Nervous laughter

Drappi also noted that during her testimony Ellison kept giggling. He speculated it was ‘nervous laughter,’ since the head of the company often did so in difficult situations.

Another employee dared to ask whose idea it had been to compensate Alameda’s loan losses with funds from FTX’s customers.

‘I think it was Sam [Bankman-Fried],’ Ellison said, then she giggled again.

Towards the end of the session, the head of the trading firm said she had wanted to resign many times, but Bankman-Fried talked her out of it.

As reported on October 11, former Alameda software engineer Aditya Baratvadj told how the firm lost at least $190 million due to a lax approach to security. Many company employees fell for phishing and fraud.