The ongoing trial of former FTX CEO Sam Bankman-Fried has uncovered a series of explosive revelations in the form of testimonies from former key FTX and Alameda Research executives. 

The latest court proceedings on Oct. 12 saw former Alameda CEO Caroline Ellison testify for the third day, following which the jury was presented with a recording of a meeting she held with Alameda staffers on Nov. 9, 2022, just days before the collapse of the FTX empire.

The meeting, held in Hong Kong and joined by nearly half of Alameda’s employees, was the key moment Ellison came clean about the ongoing scenario with the crypto exchange to her colleagues. This admission was accompanied by explosive revelations about Alameda’s financial relationship with FTX. Cointelegraph has obtained access to the secret recording, and we have curated a list of four striking elements it revealed.

Alameda’s bad investments led to the financial crisis at FTX

The first and most crucial revelation came early in the meeting when Ellison revealed that Alameda had borrowed money from FTX for a year. She admitted that Alameda had made several illiquid investments using the borrowed funds.

Due to the market downturn, Alameda’s loan positions were called in, creating a shortfall in FTX’s balance sheet. Here’s an excerpt from the discussion:

“Most of Alameda’s loans got called in in order to meet those loan recalls. We ended up borrowing a bunch of funds on FTX, which led to FTX having a shortfall in user funds. And so with the, once there started being like FUD about this and users started withdrawing funds.”

Ellison revealed that Alameda’s bad loans created market panic around FTX, causing users to withdraw their funds. FTX then paused withdrawals to contain the situation, and the exchange came crashing down within days.

FTX planned to raise more funds to compensate users

When one of the employees attending the meeting asked Ellison how FTX intended to pay back its customers, Ellison said that the crypto exchange was planning to raise further funds to fill the gap.

“Basically, FTX is trying to raise in order to do this [compensate users], but yeah, after the crash, no one wanted to invest. I don’t know, obviously, in retrospect, the plan of waiting around for several months and like for the market environment to get better and then raise.”

During the court proceedings on Thursday, Christian Drappi, a former software engineer at Alameda who was present during the meeting, told the court that Ellision’s response about paying back customers sounded concerning to him because he wasn’t aware of a scenario where investors have contributed to making customers whole due to bad financial decisions of the company.

The nervous laughter

As the secret recording was played in the court, the former Alameda employee also pointed out that Ellison had giggled during the meeting. The employee suggested this was Ellison’s “nervous laughter,” something she often did when in a tight spot.

Related: Changpeng Zhao’s tweet ‘contributed’ to collapse of FTX, claims Caroline Ellison

When Ellison was asked by a staffer at the meeting whose idea it was to plug Alameda’s loan losses with FTX customer money, she responded with, “Um, Sam, I guess,” and giggled.

Alameda almost always had access to user’s funds at FTX

Another staffer enquired about the backdoor access of Alameda to FTX and asked how long Alameda had been using FTX customers’ funds to bridge holes in its balance sheet. Ellison responded, “FTX basically always allowed Alameda to borrow user funds, as far as I know.”

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