With the publication of Caroline Ellison’s remarks at her December 19 hearing, we learn that Alameda Research has been borrowing money from FTX clients since the exchange’s inception.
FTX was lending unlimited amounts of money to Alameda Research
While Caroline Ellison, the former CEO of Alameda Research, has pleaded guilty in the FTX case, new revelations have once again shown the extent of the fraud that was committed. Journalist Matthew Russell Lee, who covers cases in the Southern District of New York, has published the minutes of her December 19 hearing:
OK – on FTX / Alameda, here now the unsealed guilty plea transcript of Caroline Ellison – it was held in secret, and not docketed until today, once Bankman-Fried was freed on $250 mln bond. Thread then stories on https://t.co/3AcCBJNU41 and pic.twitter.com/Ptd0L1u9oL
– Inner City Press (@innercitypress) December 23, 2022
In these revelations, we learn that the fraudulent management of the two companies’ cash has in fact been going on since FTX was founded:
“From 2019 to 2022, I knew that Alameda had access to a borrowing facility on FTX.com, the cryptocurrency exchange run by Mr. Bankman-Fried […]. In practical terms, this arrangement allowed Alameda to access an unlimited line of credit without being required to post collateral, without having negative balances and without being subject to margin calls on FTX.com’s liquidation protocols. “
The problem being that the funds lent by FTX were not the company’s funds, but the platform’s customers’ money, as Caroline Ellison reaffirmed:
I understood that if Alameda’s FTX accounts had large negative balances in a particular currency, it meant that Alameda was borrowing funds that FTX customers had deposited on the exchange.
If today the former CEO of Allameda Research says she is “truly sorry for having done this”, it is a speech that contrasts with the confidence she displayed at the very beginning of the crisis, when she denied her company’s problems:
A few notes on the balance sheet info that has been circulating recently:
– that specific balance sheet is for a subset of our corporate entities, we have ☻ $10b of assets that aren’t reflected there– Caroline (@carolinecapital) November 6, 2022
All of this shows that despite appearances, the FTX empire was really just a time bomb that was bound to explode at some point. Meanwhile, this week we learned that Sam Bankman-Fried had been released on $250 million bail
