By Tom Blitzer
Key Insights:
- Former Alameda CEO Ellison admits “borrowing” from FTX in a tense meeting.
- Christian Drappi’s pressing questions reveal deeper Alameda-FTX ties.
- Staff were stunned by undisclosed facts, with many opting for immediate resignation.
Caroline Ellison’s Revelation Shakes Alameda’s Foundation
In a recent development, a 75-minute audio recording reveals Caroline Ellison, the former CEO of Alameda Research, discussing a critical matter. She informed around 15 Alameda staff about the firm’s use of user deposits from the trading platform FTX.
This revelation adds another layer to the tense atmosphere surrounding FTX’s downfall. During a comprehensive all-hands meeting in Hong Kong on November 9, 2022, Ellison stated, “Alameda was kind of borrowing a significant sum via open-term loans. They used these to dive into various illiquid investments.”
Borrowing and Its Consequences
Hence, she added, “A significant chunk of FTX and FTX US equity was tied up in these deals.” Ellison explained that most of Alameda’s loans had been recalled, putting immense pressure on their resources. Consequently, they resorted to borrowing from FTX, leading to a significant deficit in FTX’s user funds.
Moreover, Ellison mentioned a startling fact, “[FTX] always allowed Alameda to tap into users’ funds.” Her comment indicates a deeper-rooted issue than initially perceived, pointing towards a longstanding arrangement that might have been overlooked or ignored.
Inside the Tense Meeting Room
This disclosure, significant in its own right, was a prelude to an even more intense exchange. Christian Drappi, previously a software engineer at Alameda, pressed Ellison about her awareness of these transactions. He also inquired who else in the organization was privy to this information. Initially hesitant, Ellison was pushed further by Drappi’s question, probing if this was some rash decision or, in his words, “a YOLO thing.”
This reference lightened up a subsequent court session when Drappi had to clarify the term “YOLO.” He humorously explained it to the attendees, emphasizing that he wanted to confirm if the move had been a well-thought-out strategy or a mere impulse.
Employees’ Reactions and Subsequent Actions
According to sources, the atmosphere in the room during Ellison’s disclosure was palpable. Drappi even described Ellison’s demeanor as “sunken” and lacking assurance. Significantly, this revelation left him “stunned” to learn about the intricate relationship between FTX and Alameda. Consequently, he resigned the very next day.
Additionally, Aditya Baradwaj, an engineer at Alameda Research who was also present, mentioned that the tension was almost tangible. Ellison unveiled a cascade of information, previously undisclosed, which included potential talks about FTX’s acquisition by its major competitor, Binance. However, this deal was later shelved.
Baradwaj stated,
“It became abundantly clear that the company’s future was in jeopardy. Hence, many of us decided to leave immediately after.”