FTX’s former CEO, Sam Bankman-Fried (SBF), allegedly guided staff to inappropriately utilize FTX client resources and hide financial vulnerabilities from various lenders, revealed former Alameda Research CEO Caroline Ellison during Wednesday’s hearing in SBF’s ongoing fraud case.
Caroline Ellison Testimony Day 2
The saga continued on its sixth day with ex-Alameda chief, Caroline Ellison, sharing her insights for the second consecutive day. Just a day earlier, Ellison narrated how SBF pushed her and other colleagues to engage in fraudulent activities by mixing FTX’s client assets. On that same Tuesday, she asserted that Alameda misappropriated “billions of dollars from FTX clients.”
Inner City Press correspondent, Matthew Russell Lee, who broadcasted the court sessions live, noted Ellison’s testimony on Wednesday. She alleged that SBF advised his team to draw from FTX client funds to square off Alameda’s debts, especially as the crypto market nosedived in 2022. This, she suggests, left FTX struggling to match $13 billion in client deposits with a meager $3 billion in hand.
Ellison vocalized her internal reservations about this tactic, fearing a mass exodus of withdrawals from FTX, which could cripple the exchange. Lee quoted her as stating, “I didn’t feel good. If people found out, they would all try to withdraw from FTX.”
However, the market’s slump did more than just dent assets; it amplified Alameda’s troubles, Ellison disclosed. Frightened by the market’s unpredictability, lenders initiated loan recalls, pushing the company to the brink. These loans, which Ellison labeled as “open-ended,” required reimbursement.
During the trial, the prosecution delved into allegations of deceptive financial statements sent to Genesis Capital and other Alameda financiers. They suggest SBF selected the most misleading version from a set of seven drafts Ellison compiled in June 2022. “Yes I did,” Ellison responded when asked if she considered the documents dishonest.
Ellison’s narrative underscored the pivotal role digital communication plays in contemporary trading. Tools like Slack and Telegram have evolved beyond mere convenience, relaying instantaneous alerts pivotal to multimillion-dollar judgments, and showcasing the digital essence of exchange interactions.
Moreover, Ellison accused SBF of ignoring staff recommendations to protect Alameda’s investments during the crypto downturn. Instead, he amplified risk and later conveniently pinned the blame on her for not hedging. She further alleged that SBF pursued an investment for FTX from Saudi Crown Prince Mohammed bin Salman and allegedly wanted to purchase Snapchat.
Ellison said FTX had only $1-2 billion in liquid assets remaining as client withdrawals accelerated on November 7, 2022. She described being “terrified” and questioning whether to finally reveal FTX could not meet all withdrawal requests.
Yet Ellison claimed Bankman-Fried still directed staff to publish misleading public reassurances that same day. She said she complied by tweeting that FTX had “hedges that aren’t listed on the balance sheet,” when this was not true.
Earlier in her testimony, Ellison said Bankman-Fried invested in the Semafor media startup and had praised The Block as a “great crypto news site.” She indicated SBF deliberately cultivated relationships with journalists to boost his image.
In his defense, SBF denies charges of investor fraud and misappropriation of FTX client funds to offset Alameda’s setbacks. Along with Gary Wang and a few others, Ellison has sided with the prosecution, admitting to fraud. The incentives for these testimonies in favor of the U.S. government remain shrouded in uncertainty.
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