Secret recording of Caroline Ellison meeting exposed in SBF trial

In an all-hands meeting on the evening of Nov. 9, 2022, Alameda Research employees gathered in a circle to listen to CEO Caroline Ellison, who was sitting on a beanbag.

It was 11 p.m. in Hong Kong, and roughly half of the employees — 15 people — at Sam Bankman-Fried’s crypto hedge fund were present. Christian Drappi, a former software engineer at Alameda, was one of them. Ten others joined via video from the Bahamas. The Alameda office was across the street from FTX, Bankman-Fried’s crypto exchange.

On Thursday, Drappi took the stand as a government witness in the criminal trial against Bankman-Fried, which is taking place 11 months after Alameda and FTX spiraled into bankruptcy. Bankman-Fried faces seven federal fraud charges and the potential of life in prison. He’s pleaded not guilty.

Drappi’s appearance on the stand in Manhattan came at the end of Ellison’s third day of testimony and included a recording of the Hong Kong meeting. Rick Best, a trader who had joined Alameda just days earlier, was directly to Ellison’s right and secretly recording the meeting as audio.

The prosecution played multiple clips from the recording, and the defense team played one in cross-examination.

To a packed courtroom, Drappi described Ellison’s demeanor that night as “sunken.” He said she was “kinda slouching” and “did not display confident body language.”

“Alameda borrowed a bunch of money,” which it used to make investments, Ellison said on the recording. But as crypto prices fell, “FTX had a shortfall of user funds” and then “users started withdrawing their funds” and they “realized they would not be able to continue.”

Drappi can be heard on the tape asking about FTX’s plan to pay back customers. Ellison, who has pleaded guilty to fraud charges and is cooperating with prosecutors, responded that the company would raise money to fill the hole. Drappi told the jury that he was concerned with that response because it’s not typical to raise outside money for that purpose.

Drappi asked Ellison if Alameda’s loans were collateralized through the spot margin group. She said they weren’t, and Drappi said, “That seems pretty bad.”

Drappi wanted to know from Ellison if this was a “YOLO thing.”

He was asked in the courtroom to explain YOLO, and said, “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 said. “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 point on the recording, Ellison giggled. Drappi, who said he’d known Ellison for a year and a half, described that as her “nervous laughter” and said she did it quite often.

When she was…