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

The testimony of Caroline Ellison Sam Bankman-Fried’s trial extended into a second day, digging deeper into the state of crypto trading firm Alameda Research’s flawed balance sheets.

“We were in a bad situation,” Ellison said, referring to the period between May and June 2022. “(We were) worried if anyone found out it would all fall apart.”

At the time, Terra/LUNA collapsed, causing difficulties for a number of crypto market participants and a loss in value of cryptocurrencies. The stablecoin’s implosion occurred months before the collapse of FTX itself, an event that was triggered by a leaked CoinDesk balance sheet that sowed doubt about its solvency. Ellison testified that the balance sheet was the one shared with lenders, not the specific one the company used internally. This means that the track record CoinDesk reported on was also “dishonest” and still “underestimated the true risk” of Alameda and FTX.

Ellison testified that Alameda had to repay crypto lenders like Genesis, who were demanding repayment of the loans. She said FTX customer deposits were used to repay lenders, and when lenders requested balance sheets in mid-June 2022, FTX changed them because “Alameda was in a very bad situation” and didn’t want to. not “(Genesis) knowledge”.

But instead of sending truthful balance sheets, showing how much money Alameda “borrowed” from FTX, they changed it to “make (its) leverage and risk lower.” This was done under the direction of Bankman-Fried, Ellison said.

She added that this was done for several reasons, one of which was that Alameda did not want Genesis to recall all of Alameda’s loans or for the news to spread because it would add concerns about the company .

“I didn’t want to be dishonest, but I also didn’t want to tell the truth,” Ellison said on the stand.

So she prepared seven balance sheets for Bankman-Fried to review with “alternative ways” of presenting their financial situation in order to “cover up things” that they “both thought were wrong.” These balance sheets were created “to look better in the eyes of lenders,” Bankman-Fried said at the time, according to Ellison.

At the time, in June 2022, Alameda had borrowed $9.9 billion from FTX customers, which “clearly showed that Alameda was in a risky situation,” Ellison said, and would give FTX “a very bad image “. It also had open term loans worth $1.8 billion that would have to be repaid at any time a lender demanded repayment, as well as $2.9 billion in fixed term loans that constituted ” long-term debts,” Ellison said. .

The company had about $12 billion in liabilities and $3 billion in liquid assets at the time, according to Ellison.


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