Secret recording of Caroline Ellison meeting with Alameda staff exposed in SBF criminal trial

Caroline Ellison, former chief govt officer of Alameda Research LLC, leaves Manhattan Federal Court after testifying in the course of the trial of FTX CEO Sam Bankman-Fried, on October 10, 2023 in New York City. 

Michael M. Santiago | Getty Images

In an all-hands meeting on the night of Nov. 9, 2022, Alameda Research staff gathered in a circle to take heed to CEO Caroline Ellison, who was sitting on a beanbag.

It was 11 p.m. in Hong Kong, and roughly half of the staff — 15 folks — at Sam Bankman-Fried’s crypto hedge fund have been current. Christian Drappi, a former software program engineer at Alameda, was one of them. Ten others joined by way of video from the Bahamas. The Alameda workplace was throughout the road from FTX, Bankman-Fried’s crypto alternate.

On Thursday, Drappi took the stand as a authorities witness in the criminal trial towards Bankman-Fried, which is happening 11 months after Alameda and FTX spiraled into chapter 11. Bankman-Fried faces seven federal fraud fees and the potential of life in jail. He’s pleaded not responsible.

Drappi’s look on the stand in Manhattan got here on the end of Ellison’s third day of testimony and included a recording of the Hong Kong meeting. Rick Best, a dealer who had joined Alameda simply days earlier, was on to Ellison’s proper and secretly recording the meeting as audio.

The prosecution performed a number of clips from the recording, and the protection crew performed one in cross-examination.

To a packed courtroom, Drappi described Ellison’s demeanor that evening as “sunken.” He stated she was “kinda slouching” and “didn’t show assured physique language.”

“Alameda borrowed a bunch of cash,” which it used to make investments, Ellison stated on the recording. But as crypto costs fell, “FTX had a shortfall of person funds” after which “customers began withdrawing their funds” they usually “realized they might not be capable to proceed.”

Drappi might be heard on the tape asking about FTX’s plan to pay again prospects. Ellison, who has pleaded responsible to fraud fees and is cooperating with prosecutors, responded that the corporate would elevate cash to fill the opening. Drappi informed the jury that he was involved with that response as a result of it isn’t typical to lift exterior cash for that objective.

Drappi requested Ellison if Alameda’s loans have been collateralized by means of the spot margin group. She stated they weren’t, and Drappi stated, “That appears fairly unhealthy.”

Drappi wished to know from Ellison if this was a “YOLO factor.”

He was requested in the courtroom to elucidate YOLO, and stated, “It’s an acronym for ‘you solely stay as soon as.'”

“When you do a YOLO factor, it is one thing that is spontaneous and never premeditated,” Drappi stated. “I wished to have Ms. Ellison affirm that certainly, you already know, they’d conferences about this and there was a deliberate determination, as I suspected it could be.”

At one level on the recording, Ellison giggled. Drappi, who stated he’d recognized Ellison for a 12 months and a half, described that as her “nervous laughter” and stated she did it very often.

When she was requested by a staffer whose thought it was to plug Alameda’s mortgage losses with FTX buyer cash, she stated, “Um, Sam, I assume,” and giggled.

“FTX mainly at all times allowed Alameda to, like, borrow person funds, so far as I do know” she stated on the recording.

Drappi resigned inside 24 hours.

Caroline Ellison is questioned throughout Sam Bankman-Fried’s fraud trial over the collapse of FTX, the bankrupt cryptocurrency alternate, at Federal Court in New York City, U.S., October 11, 2023 in this courtroom sketch. 

Jane Rosenberg | Reuters

Drappi began at Alameda on May 31, 2021. Over the following 18 months, he labored in three places of work: Hong Kong, the Bahamas and San Francisco. He was in Hong Kong because the enterprise was falling aside.

In his testimony, Drappi stated he noticed Bankman-Fried working on the Hong Kong workplace and sat about 40 ft from him there for a pair months. The two frolicked some out of the workplace, together with to play padel, a hybrid of tennis and squash.

Drappi stated Bankman-Fried maintained direct communications with Alameda staff by means of Signal. He weighed in on giant trades and had entry to “pointer,” Alameda’s inner interface, in addition to to the agency’s back-end knowledge.

In regards to buying and selling, Drappi referenced one occasion in which a senior dealer stated “Sam wished to do it,” referring to a commerce involving promoting Japanese bonds and shopping for the forex. Drappi stated he spoke to Alameda merchants on daily basis.

The evening earlier than the all-hands meeting, Nov. 8, Drappi stated he was in the workplace alongside with Ellison and two merchants, Tony Qian and David Nyeste. At about 11 p.m., Bankman-Fried posted a tweet announcing that Binance was shopping for FTX, in what would quantity to a rescue of the alternate.

Drappi stated the response was “shock.”

The Binance settlement was non-binding. On Nov. 9, the rival alternate backed out of the deal, and CEO Changpeng Zhao stated FTX’s “points are past our management or capability to assist.” Two days later FTX declared bankruptcy.

WATCH: Caroline Ellison details SBF’s involvement in running Alameda

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