Caroline Ellison, former chief government officer of Alameda Analysis LLC, leaves Manhattan Federal Courtroom after testifying in the course of the trial of FTX CEO Sam Bankman-Fried, on October 10, 2023 in New York Metropolis.
Michael M. Santiago | Getty Photos
In an all-hands assembly on the night of Nov. 9, 2022, Alameda Analysis staff gathered in a circle to hearken to CEO Caroline Ellison, who was sitting on a beanbag.
It was 11 p.m. in Hong Kong, and roughly half of the staff — 15 folks — at Sam Bankman-Fried’s crypto hedge fund have been current. Christian Drappi, a former software program engineer at Alameda, was one in all them. Ten others joined through video from the Bahamas. The Alameda workplace was throughout the road from FTX, Bankman-Fried’s crypto alternate.
On Thursday, Drappi took the stand as a authorities witness within the felony trial towards Bankman-Fried, which is happening 11 months after Alameda and FTX spiraled into chapter 11. Bankman-Fried faces seven federal fraud prices and the potential of life in jail. He is pleaded not responsible.
Drappi’s look on the stand in Manhattan got here on the finish of Ellison’s third day of testimony and included a recording of the Hong Kong assembly. Rick Finest, a dealer who had joined Alameda simply days earlier, was on to Ellison’s proper and secretly recording the assembly as audio.
The prosecution performed a number of clips from the recording, and the protection crew performed one in cross-examination.
To a packed courtroom, Drappi described Ellison’s demeanor that night time as “sunken.” He mentioned she was “kinda slouching” and “didn’t show assured physique language.”
“Alameda borrowed a bunch of cash,”a which it used to make investments, Ellison mentioned on the recording. However as crypto costs fell, “FTX had a shortfall of consumer funds” after which “customers began withdrawing their funds” they usually “realized they might not have the ability to proceed.”
Drappi might be heard on the tape asking about FTX’s plan to pay again clients. Ellison, who has pleaded responsible to fraud prices and is cooperating with prosecutors, responded that the corporate would increase cash to fill the outlet. Drappi instructed the jury that he was involved with that response as a result of it isn’t typical to lift outdoors cash for that goal.
Drappi requested Ellison if Alameda’s loans have been collateralized via the spot margin group. She mentioned they weren’t, and Drappi mentioned, “That appears fairly unhealthy.”
Drappi wished to know from Ellison if this was a “YOLO factor.”
He was requested within the courtroom to elucidate YOLO, and mentioned, “It is an acronym for ‘you solely reside as soon as.'”
“While you do a YOLO factor, it is one thing that is spontaneous and never premeditated,” Drappi mentioned. “I wished to have Ms. Ellison affirm that certainly, you understand, they’d conferences about this and there was a deliberate determination, as I suspected it could be.”
At one level on the recording, Ellison giggled. Drappi, who mentioned he’d identified Ellison for a 12 months and a half at that time, described that as her “nervous laughter” and mentioned she did it very often.
When she was requested by a staffer whose concept it was to plug Alameda’s mortgage losses with FTX buyer cash, she mentioned, “Um, Sam, I suppose,” and giggled.
“FTX principally at all times allowed Alameda to, like, borrow consumer funds, so far as I do know” she mentioned on the recording.
Drappi resigned inside 24 hours.
Caroline Ellison is questioned throughout Sam Bankman-Fried’s fraud trial over the collapse of FTX, the bankrupt cryptocurrency alternate, at Federal Courtroom in New York Metropolis, U.S., October 11, 2023 on this courtroom sketch.
Jane Rosenberg | Reuters
Drappi began at Alameda on Might 31, 2021. Over the following 18 months, he labored in three workplaces: Hong Kong, the Bahamas and San Francisco. He was in Hong Kong because the enterprise was falling aside.
In his testimony, Drappi mentioned he noticed Bankman-Fried working on the Hong Kong workplace and sat about 40 ft from him there for a pair months. The 2 frolicked some out of the workplace, together with to play padel, a hybrid of tennis and squash.
Drappi mentioned Bankman-Fried maintained direct communications with Alameda staff via Sign. He weighed in on giant trades and had entry to “pointer,” Alameda’s inner interface, in addition to to the agency’s back-end information.
With regard to buying and selling, Drappi referenced one occasion wherein a senior dealer mentioned “Sam wished to do it,” referring to a commerce involving promoting Japanese bonds and shopping for the forex. Drappi mentioned he spoke to Alameda merchants each day.
The night time earlier than the all-hands assembly, Nov. 8, Drappi mentioned he was within the workplace together with Ellison and two merchants, Tony Qian and David Nyeste. At about 11 p.m., Bankman-Fried posted a tweet saying that Binance was shopping for FTX, in what would quantity to a rescue of the alternate.
When requested if he knew about Alameda’s borrowing from FTX buyer accounts, Drappi mentioned no, “I used to be completely shocked.”
The Binance settlement was non-binding. On Nov. 9, the rival alternate backed out of the deal, and CEO Changpeng Zhao mentioned FTX’s “points are past our management or means to assist.” Two days later FTX declared chapter.
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