A secretly recorded five-minute audio sheds light on the exact moment Caroline Ellison found out that 15 former Alameda Research employees were using FTX user funds as ‘borrowed’.

This recording reveals the apparent tension Ellison and Alameda staff experienced towards the collapse of FTX.

Ellison explains, during a meeting in Hong Kong on November 9, 2022, that “Alameda was borrowing some money through open term loans and using it for various illiquid investments. Basically, we were making a lot of illiquid investments like FTX and FTX US. Most of Alameda’s loans were recalled to meet these calls.”

“In the end, we borrowed some funds from FTX, and this caused a shortage in FTX’s user funds.” She addresses about 15 staff in the meeting, saying “FTX basically always gave Alameda permission to borrow users’ funds.”

Christian Drappi, a former software engineer, stole parts of the recording and played them as witness testimony on the eighth day of the penal court of Sam Bankman-Fried on October 12. This occurred during a period of increased tension towards the collapse of FTX.

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High Tension over Alameda’s FTX Money Management

Drappi’s statement came immediately after Ellison’s. Prior to the meeting, it appears that Drappi and many other Alameda employees did not know, as alleged, that the hedge fund was using FTX client deposits to support trading activity.

On the recording, Drappi asked Ellison, “When did you become aware of whether Alameda was misusing FTX user deposits and who in the company was aware of this?”

Initially, Ellison avoided answering, but Drappi asked again:

“This wasn’t like a sudden decision, was it?”

According to court records, the playing of this audio recording led to one of the more amusing moments in court. Drappi had to explain the term “YOLO” to everyone, emphasizing that he used this term to get Ellison to confirm that the use of FTX deposits was not just an “instant” decision.

In his testimony, Drappi described Ellison’s behavior at the meeting as “swampy” and said it did not inspire much confidence among Alameda employees. He noted that he was “flabbergasted” to learn about the extent of the relationship between FTX and Alameda and resigned the next day.

Alameda Research engineer Aditya Baradwaj was also a participant of the meeting and noted that the room atmosphere was “extremely tense”. Ellison revealed previously undisclosed information that the company had never discussed internally. This included FTX’s eventual decision to abandon its acquisition by Binance, its biggest competitor at the time.

“It was pretty clear that there was no future for the company and we all had to leave. And we left immediately,” Baradwaj added.

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