Secret Recording Reveals Caroline Ellison Telling Alameda Employees: FTX “Always Allowed Alameda to Borrow Users’ Funds”

ByJane Lubale

Updated: 13 October 2023

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A secret recording from an internal meeting reveals former Alameda Research CEO Caroline Ellison telling employees that FTX had always allowed it to borrow user funds.

The audio clip, shared by Business Insider, captures events that unfolded at Alameda’s Hong Kong office, where around 15 employees attended in person and another 30 joined remotely.

It begins with Ellison saying that Alameda had been using the borrowed funds to make investments.

Alameda Borrowed ‘A Bunch of Money,’ Caroline Ellison Said

“Alameda was kind of borrowing a bunch of money via open-term loans and using that to make various illiquid investments,” she said. “So like a bunch of FTX and FTX US equity. [FTX] basically always allowed Alameda to borrow users’ funds. We ended up borrowing a bunch of funds from FTX, which led to FTX having a shortfall in user funds.”

Portions of the audio recording were presented in court yesterday during Sam Bankman-Fried’s criminal trial in relation to testimony by Christian Drappi, a former software engineer at Alameda.

Drappi’s Testimony

Drappi’s testimony provided context to the recording and the unfolding events. He disclosed that prior to this meeting, he and many other Alameda employees were completely unaware of their hedge fund’s misuse of FTX customer deposits.

AUSA: Mr. Drappi, I'm sure it wasn't a YOLO thing, what does YOLO mean?
Drappi: You Only Live Once.
Audio:
Ellison: FTX like always allowed Alameda to borrow user funds..

— Inner City Press (@innercitypress) October 12, 2023

Ellison told Drappi during the meeting that she had initially believed cryptocurrency prices would rise sufficiently to balance the financial situation

Caroline Ellison Had ‘Sunken’ Demeanour

Drappi described Ellison as appearing “sunken” during the meeting and said her performance didn’t inspire any confidence in the future of FTX companies.

The recording was made by an Alameda trader who had only been with the company for three days prior to the meeting. He gave a copy to Drappi, who later shared it with prosecutors.

Judge Kaplan: This is for prior consistent statement.
AUSA: Who recorded the all-hands meeting?
Drappi: Rick Best. He had started at Alameda three days before this. He gave me the recording.
AUSA: Here's a CD, have you reviewed it?
Drappi: Yes. It's audio clips.

— Inner City Press (@innercitypress) October 12, 2023

Drappi testified that he resigned from Alameda within a day of the meeting,

Bankman-Fried’s Defense

During the trial, there was a legal wrangle over whether the audio clips should be admitted as evidence.

In the end, Judge Lewis Kaplan ruled in favor of a compromise: the government could play six clips, while the defense could play one from the same meeting after the government’s presentation.

In the defense’s clip, Ellison was heard thanking an employee for appreciating her transparency in admitting to the use of FTX customer funds, even laughing and saying, “It was kind of fun.”

The defense argued that her statements went beyond what Bankman-Fried had intended her to convey to Alameda employees.

They presented a text message from Bankman-Fried that advised Ellison to inform employees only that the company was shutting down, contrasting it with the greater detail she provided.

Bankman-Fried has pleaded not guilty to seven charges of fraud and conspiracy