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 Research’s defective steadiness sheets.
“We were in a bad situation,” Ellison mentioned, referring to the time interval between May and June 2022. “[We were] concerned if anyone found out it would all come crashing down.”
At the time, Terra/LUNA collapsed, inflicting a variety of crypto market gamers to wrestle 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 solid doubt on its solvency. Ellison testified that the steadiness sheet was one shared with lenders, not the correct one the corporate used internally. This implies that the steadiness sheet CoinDesk reported on was additionally “dishonest” and nonetheless “understated true risk” 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 mentioned 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 very bad situation” and didn’t need “[Genesis] to know that.”
But as an alternative of sending truthful steadiness sheets, displaying how a lot cash Alameda “borrowed” from FTX, they modified it to “make [its] leverage and risk look lower.” This was performed on the course of Bankman-Fried, Ellison mentioned.
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 concerning the agency.
“I didn’t want to be dishonest but also didn’t want to tell the truth,” Ellison mentioned on the stand.
So she ready seven steadiness sheets for Bankman-Fried to evaluate with “alternative ways” of presenting their monetary state of affairs to “conceal things” that they “both thought were bad.” These steadiness sheets had been made “to look better to lenders,” Bankman-Fried mentioned on the time, based on Ellison.
At the time in June 2022, Alameda borrowed $9.9 billion from FTX clients, which “made it clear Alameda was in a risky situation,” Ellison mentioned, and would make FTX “look very bad.” It additionally had open time period loans value $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 mentioned.
The firm on the time had round $12 billion in liabilities and $3 liquid billion in property, per Ellison.