This week the courtroom witnessed Caroline Ellison’s explosive revelations about the alleged financial wrongdoing of Sam Bankman-Fried (SBF), the former boss of FTX. Ellison, a former head of Alameda Research, has been at the center of crucial testimony since Wednesday exposing balance sheet manipulation and alleged embezzlement of billions in customer funds from the FTX platform. We return to it in Cryptic Analysis after the week’s major news.
Block 1: Essential news
- JPMorgan expands its tokenization services
JPMorgan threw a new service based on blockchain technology called “Tokenized Collateral Network” (TCN), which simplifies and accelerates collateral exchanges by tokenizing them. Influential companies such as BlackRock and Goldman Sachs are already customers of the service, according to Bloomberg. Specifically, TCN allows operators to use various assets as collateral and transfer ownership of that collateral without moving actual assets. This service would significantly reduce operational friction and enable almost instantaneous collateral transfers compared to traditional methods that can take up to 24 hours.
- Ethereum Foundation sells $2.7 million worth of ETH
The Ethereum Foundation sold 1,700 ETH, equivalent to 2.7 million USD at the time of sale on October 9th, converted to USDC on Uniswap. Historically, such foundation sales are sometimes followed by a decline in the price of ETH. However, the current sale is relatively modest compared to previous transactions, such as last May when $28.5 million in ETH was transferred. No reason was given for this October ETH sale.
- 14 years ago, the first Bitcoin transaction was made
On October 12, 2009 first sale of bitcoins (BTC) was conducted by Martti Malmi, where 5,050 BTC – which would be worth over $130 million today – was sold for just $5.02 via PayPal. At the time, one BTC was worth $0.001. Since then, the value of BTC has increased exponentially, one bitcoin today is equivalent to $26,760, multiplying the original value more than 26.9 million times.
- The Kraken is breeding in Europe
Kraken, a cryptocurrency exchange, announced the acquisition of Coin Meester BV (BCM), a Dutch crypto broker, as part of its European expansion plans. This acquisition, which follows Kraken’s recent registration in Spain, is strategic in light of the upcoming MiCA regulation in Europe. Launched in 2017, BCM offers trading in more than 170 cryptocurrencies and its integration will strengthen Kraken’s presence in the Netherlands, a key market characterized by high adoption of cryptocurrencies compared to other European countries.
Block 2: Cryptic analysis of the week
In a courtroom filled with waiting and scrutinizing looks, the saga of Sam Bankman-Fried’s alleged financial misdeeds continued this week, with Caroline Ellison, the former head of Alameda Research, at the epicenter. As a reminder, Alameda Research, founded by SBF in 2017, was operated as a cryptocurrency hedge fund, often secretly buying and selling various digital currencies on the FTX exchange. Back to court.
Ms. Ellison, just 28 years old and a former romantic partner of SBF, gave much-anticipated testimony, both in the media and in court, saying she committed financial crimes with the former FTX CEO and that he specifically commissioned Alameda. “borrow as much as possible”.
Ellison’s testimony lived up to the hype. She accurately described the routes through which billions of FTX customers’ funds flowed through the arteries of defunct cryptocurrency platforms.
Sketch: Caroline Ellison is questioned in court as Sam Bankman-Fried looks on
Cameras are not allowed inside the courtroom, meaning Bankman-Fried and Caroline Ellison’s appearance can only be gleaned from courtroom sketches.
In particular, Ellison said she was concerned as early as 2020 about the use of FTX customer funds through Alameda’s $65 billion line of credit with FTX because “it was something that the customers were not aware of, and if they knew, they would not appreciate it .” She said she raised those concerns with Mr. Bankman-Fried, including in 2020 when she asked whether the line of credit would come up in the FTX audit. He replied, “No, don’t worry, the audience won’t be watching.”
In addition, Alameda’s former CEO said the fund deliberately manipulated its balance sheet at the SBF’s behest to make it appear “less risky in the eyes of investors.” Ms. Ellison also said Alameda effectively stole billions of dollars from FTX clients to finance “doomed investments and buy influence with politicians.”
Ellison testified that she prepared seven different balance sheets when the markets crashed in June 2022, which Bankman-Fried reviewed, for lenders when they began calling in their loans in Alameda. He chose one of the options that failed to show that Alameda borrowed $10 billion in FTX customer funds, Bloomberg reported.
Sam Bankman-Fried considered closing his Alameda Research hedge fund in 2022 due to concerns about its “harmful trading activity” and excessive leveraged position on FTX, according to an unpublished blog post. presented during the trial. Mr Ellison revealed that the SBF was in talks with Saudi Prince Mohammed Bin Salman to cover FTX’s losses and that it was regularly informed of the amount of money Alameda had taken from FTX clients.
Finally, Caroline Ellison also revealed that RobinHood shares held by SBF were bought with Alameda funds. However, SBF wanted to repatriate them to FTX for reputational reasons.
SBF’s defense attorneys argued that Ellison was a negligent Alameda manager who ignored Bankman-Fried’s instructions to “cover up” the losses, thereby contributing to the companies’ collapse. Mr Bankman-Fried’s lawyers argued that he did not commit fraud, did not intend to and acted in “good faith” in running FTX. The defense said it would cross-examine Caroline Ellison once prosecutors finished their questioning.
The former Alameda Research director is expected to take the helm today as well. But it’s not done. Prosecutors plan to call Christian Drappi, a former software engineer from Alameda, and Zac Prince, the founder and CEO of bankrupt cryptocurrency lending company BlockFi, as additional witnesses this week. BlockFi was Alameda’s main lender and used a $400 million credit line from FTX after it was reportedly bailed out by the cryptocurrency exchange last summer.
The court has given an updated schedule for this case and expects it to be completed as early as October 26 or 27. Indeed, the 31-year-old could be locked up in federal prison for more than 100 years when the case is closed. To be continued.
Block 3: Tops & Flops
(Click to enlarge)
Block 4: Reading of the week
Journalist and fallen billionaire (The Atlantic, in English)
Sophon of Satoshi: Destroyer BRC-20 (Bitcoin Magazine, in English)
New evidence suggests that stolen FTX funds went to money laundering in Russia (Wired, in English)