Weeks before the FTX crypto exchange’s collapse, its former CEO, Sam Bankman-Fried, was navigating tumultuous waters.
His actions were revealed in personal notes from ex-Alameda Research CEO, Caroline Ellison, presented in a New York trial.
Testifying, Ellison recounted that a significant crash in the Terra ecosystem in May 2022 spurred Bankman-Fried to contemplate closing Alameda and soliciting $1 billion in capital from a Saudi Prince recognized for his blockchain gaming investments via Saudi Arabia’s sovereign wealth fund.
Additionally, to boost FTX’s market presence, Bankman-Fried strategized on urging regulators to target rival crypto exchange Binance.
The specifics of this strategy remain undisclosed.
In terms of financing, Bankman-Fried pursued additional funds from BlockFi, having previously borrowed over $660 million.
Other focal points for him encompassed trading Japanese government bonds and purchasing Snap Inc stocks.
A curious note mentioned “Willie being happy”, potentially referring to William MacAskill, believed to be Bankman-Fried’s mentor.
Ellison shared that Bankman-Fried attributed Alameda’s challenges and flawed hedging to her.
She acknowledged that improved hedging could’ve benefited Alameda amidst the cryptocurrency downturn.
However, Alameda’s financial difficulties weren’t solely hedging-related; the company had substantial open-term loans and had drained billions from its FTX credit line.
Open-term loans are unique, allowing borrowers a prepayment choice while granting lenders a call option. By June, lenders began exercising their call options, compelling Alameda to repay vast amounts.
Ellison, following Bankman-Fried’s instructions, settled some of Alameda’s obligations using FTX client funds. By September 2022, Alameda’s debts to FTX had escalated to $13.7 billion, with open-term loans at $1.3 billion.
Compounding the financial maze, Ellison, upon Bankman-Fried’s directive, produced “alternative” financial statements for Alameda’s lenders.
These concealed the company’s fiscal obligations to FTX, presenting a rosier financial picture to stave off full repayment demands.
Ellison candidly communicated her fears during the trial, emphasizing her daily apprehensions about simultaneous loan calls and the potential mass exodus of FTX clients due to Alameda’s financial strain.
Bankman-Fried’s defense is slated to cross-examine Ellison on Oct. 12.