Caroline Ellison, former chief government officer of Alameda Research LLC, leaves Manhattan Federal Court after testifying throughout the trial of FTX CEO Sam Bankman-Fried, on October 10, 2023 in New York City.
Michael M. Santiago | Getty Images
In an all-hands assembly on the night of Nov. 9, 2022, Alameda Research staff gathered in a circle to take heed 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 individuals — at Sam Bankman-Fried’s crypto hedge fund had been current. Christian Drappi, a former software program engineer at Alameda, was one in every of them. Ten others joined by way of video from the Bahamas. The Alameda workplace was throughout the road from FTX, Bankman-Fried’s crypto trade.
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 costs and the potential of life in jail. He’s 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 Best, 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 workforce performed one in cross-examination.
To a packed courtroom, Drappi described Ellison’s demeanor that evening as “sunken.” He stated she was “kinda slouching” and “did not display confident body language.”
“Alameda borrowed a bunch of money,” which it used to make investments, Ellison stated on the recording. But as crypto costs fell, “FTX had a shortfall of user funds” after which “users started withdrawing their funds” and so they “realized they would not be able to continue.”
Drappi will be heard on the tape asking about FTX’s plan to pay again prospects. Ellison, who has pleaded responsible to fraud costs and is cooperating with prosecutors, responded that the corporate would elevate cash to fill the opening. Drappi instructed the jury that he was involved with that response as a result of it is not typical to boost outdoors cash for that objective.
Drappi requested Ellison if Alameda’s loans had been collateralized by means of the spot margin group. She stated they weren’t, and Drappi stated, “That seems pretty bad.”
Drappi needed to know from Ellison if this was a “YOLO thing.”
He was requested within the courtroom to clarify YOLO, and stated, “It’s an acronym for ‘you only live once.'”
“When you do a YOLO thing, it’s something that’s spontaneous and not premeditated,” Drappi stated. “I wanted to have Ms. Ellison confirm that indeed, you know, they had meetings about this and there was a deliberate decision, as I suspected it would be.”
At one level on the recording, Ellison giggled. Drappi, who stated he’d recognized Ellison for a 12 months and a half, described that as her “nervous laughter” and stated 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 stated, “Um, Sam, I guess,” and giggled.
“FTX basically always allowed Alameda to, like, borrow user funds, as far as I know” she stated 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 trade, at Federal Court in New York City, U.S., October 11, 2023 on this courtroom sketch.
Jane Rosenberg | Reuters
Drappi began at Alameda on May 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 business was falling aside.
In his testimony, Drappi stated he noticed Bankman-Fried working on the Hong Kong workplace and sat about 40 toes from him there for a pair months. The two frolicked some out of the workplace, together with to play padel, a hybrid of tennis and squash.
Drappi stated Bankman-Fried maintained direct communications with Alameda staff by means of the messaging app Signal. He weighed in on massive trades and had entry to “pointer,” Alameda’s inside interface, in addition to to the agency’s back-end information.
In regard to buying and selling, Drappi referenced one occasion wherein a senior dealer stated, “Sam wanted to do it,” referring to a commerce involving promoting Japanese bonds and shopping for the forex. Drappi stated he spoke to Alameda merchants daily.
The evening earlier than the all-hands assembly, Nov. 8, Drappi stated 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 asserting that Binance was shopping for FTX, in what would quantity to a rescue of the trade.
Drappi stated the response was “shock.”
The Binance settlement was nonbinding. On Nov. 9, the rival trade backed out of the deal, and CEO Changpeng Zhao stated FTX’s “issues are beyond our control or ability to help.” Two days later FTX declared chapter.
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