The Collapse of FTX: Revelations from the Courtroom

In the world of cryptocurrency, the trial of former FTX CEO Sam Bankman-Fried has turned into one of the most talked-about events in recent times.

by Faruk Imamovic
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The Collapse of FTX: Revelations from the Courtroom
© Getty Images News/Michael M. Santiago

In the world of cryptocurrency, the trial of former FTX CEO Sam Bankman-Fried has turned into one of the most talked-about events in recent times. As the curtains are slowly pulled back, explosive testimonies from key FTX and Alameda Research figures have emerged, shedding light on the dramatic fall of the once-mighty FTX empire.

The Hong Kong Meeting that Changed Everything

On October 12th, the courtroom audience leaned in as former Alameda CEO Caroline Ellison took to the stand for the third consecutive day. The real shocker came when a secret recording of a meeting she had with Alameda staffers on November 9, 2022, was played before the jury.

Held in Hong Kong and attended by almost half of Alameda’s workforce, this gathering marked the moment Ellison openly discussed the dire situation facing the crypto exchange. Thanks to a scoop by Cointelegraph, who managed to get their hands on the exclusive recording, the public now has a glimpse into four pivotal revelations from that meeting.

Alameda's Ill-Fated Investments

Ellison’s initial confession centered around Alameda borrowing funds from FTX for a year and subsequently making several illiquid investments with this money. As the market took a turn for the worse, Alameda's loan positions were hastily called in, punching a significant hole in FTX’s balance sheet.

Ellison was captured in the recording saying: “Most of Alameda’s loans got called in in order to meet those loan recalls. We ended up borrowing a bunch of funds on FTX, which led to FTX having a shortfall in user funds.

And so with the, once there started being like FUD about this and users started withdrawing funds”. This chain of events led to widespread market panic surrounding FTX, with users hastily trying to withdraw their funds.

In an attempt to manage the chaos, FTX temporarily halted withdrawals, but it was too late. The exchange's reputation was in ruins, and its downfall followed shortly.

A Desperate Attempt to Recompense Users

Amid the turbulence, there was palpable concern over how FTX would repay its customers.

Addressing this in the meeting, Ellison mentioned that FTX was looking to secure additional funds to bridge the financial gap. However, post the FTX fiasco, potential investors were few and far between. She remarked, “Basically, FTX is trying to raise in order to do this [compensate users], but yeah, after the crash, no one wanted to invest.

I don’t know, obviously, in retrospect, the plan of waiting around for several months and like for the market environment to get better and then raise”. Christian Drappi, a former Alameda software engineer who was in attendance, later testified in court that Ellison's plans to repay customers raised alarm bells for him, mainly because he had never witnessed investors stepping in to salvage customers from a company's financial blunders.

As the trial progresses, the crypto community and beyond await further revelations. The downfall of FTX stands as a stark reminder of the volatility of the cryptocurrency world and the high stakes involved for those at its helm.

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