Weekly examination of Bankman-Fried's court proceedings in Trial Week 2
In the aftermath of the dramatic collapse of cryptocurrency exchange FTX, Zac Prince, CEO of bankrupt crypto firm BlockFi, has testified that he believes the downfall of his company was partially due to the implosion of FTX and its sister company, Alameda Research.
Prince stated that had he been aware of Alameda's use of customer funds and falsified balance sheets, he would not have provided loans to the company. This revelation comes as Caroline Ellison, former CEO of Alameda Research, admitted to committing crimes including fraud, conspiracy to commit fraud, and money laundering. Ellison testified that Sam Bankman-Fried, the former CEO of FTX, directed her to commit these crimes.
Alameda's net asset value, according to Ellison, was around $6 billion, but inflated by the presence of FTT (FTX's native token) on the balance sheet. The company first used its $65 billion FTX line of credit, which tapped customer funds, in 2021 to buy out Binance's stake in FTX.
BlockFi had $1.1 billion on the FTX exchange, and the company lended funds to Alameda. $650 million of the loans provided remains outstanding. Major creditors that lent to Alameda Research and recalled loans during the FTX collapse include BlockFi, Genesis, and Silvergate Bank.
Several lenders ordered Alameda to return their loans during a volatile time in the crypto market, according to Axios. Ellison did not have equity in Alameda, despite being its CEO.
In another twist, Gary Wang, FTX co-founder and technology chief, testified that he wrote code to allow Alameda to access FTX customer funds at Sam Bankman-Fried's direction. FTX misled customers regarding the value of an insurance fund designed to protect user losses, according to Cointelegraph. The actual value was often insufficient to cover customer losses.
FTX's former CEO, Sam Bankman-Fried, tweeted "FTX is fine. Assets are fine" during FTX's bank run, a statement that was deemed misleading according to The Wall Street Journal. Alameda's total liabilities at the time, as per Ellison, were $14.9 billion.
In a significant development, both Wang and Caroline Ellison, former CEO of Alameda Research, pleaded guilty to multiple charges in December. The regulatory or policy context surrounding these events is still being investigated and reported on.
