Former Alameda CEO Caroline Ellison explains how FTX hid losses, sandbagged lenders

Caroline Ellison’s testimony at Sam Bankman-Fried’s trial unfold right into a second day, digging deep into the state of crypto buying and selling agency Alameda Analysis’s defective steadiness sheets.

“We had been in a nasty state of affairs,” Ellison stated, referring to the time interval between Could and June 2022. “[We were] involved if anybody discovered it could all come crashing down.”

On the time, Terra/LUNA collapsed, inflicting various crypto market gamers to battle and cryptocurrencies to lose worth. The stablecoin’s implosion got here months earlier than FTX itself collapsed, an occasion that was triggered when a steadiness sheet was leaked by CoinDesk that forged doubt on its solvency. Ellison testified that the steadiness sheet was one shared with lenders, not the correct one the corporate used internally. Which means that the steadiness sheet CoinDesk reported on was additionally “dishonest” and nonetheless “understated true danger” of Alameda and FTX.

Ellison testified that Alameda needed to repay crypto lenders like Genesis, who had been asking for loans to be repaid. She stated FTX buyer deposits had been used to repay lenders, and when lenders requested steadiness sheets in mid-June 2022, FTX modified them as a result of “Alameda was in a really dangerous state of affairs” and didn’t need “[Genesis] to know that.”

However as a substitute of sending truthful steadiness sheets, displaying how a lot cash Alameda “borrowed”  from FTX, they modified it to “make [its] leverage and danger look decrease.” This was performed on the route of Bankman-Fried, Ellison stated.

She added that this was performed for a number of causes, one among which was that Alameda didn’t need Genesis to recall all of Alameda’s loans or for the information to unfold as a result of it could add concern in regards to the agency.

“I didn’t wish to be dishonest but additionally didn’t wish to inform the reality,” Ellison stated on the stand.

So she ready seven steadiness sheets for Bankman-Fried to evaluate with “alternative routes” of presenting their monetary state of affairs to “conceal issues” that they “each thought had been dangerous.” These steadiness sheets had been made “to look higher to lenders,” Bankman-Fried stated on the time, in line with Ellison.

On the time in June 2022, Alameda borrowed $9.9 billion from FTX prospects, which “made it clear Alameda was in a dangerous state of affairs,” Ellison stated, and would make FTX “look very dangerous.” It additionally had open time period loans price $1.8 billion that must be paid again at any time a lender reached out to ask for the cash again, in addition to $2.9 billion in mounted time period loans that had been “long-term liabilities,” Ellison stated.

The corporate on the time had round $12 billion in liabilities and $3 liquid billion in property, per Ellison.