FTX, SBF, just dumb...

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Imagine coming into the company all-hands meeting at the lucrative trading firm you work at, in the Bahamas, far away from your friends and family and competitors, in a slightly cult-like environment where your every need is catered to out of the firm’s enormous profits. And then your 28-year-old boss is like “so guys, a little bad news, actually we’re a Ponzi? Sorry if I didn’t mention that earlier.” Everyone quit immediately, but much too late.

That meeting happened on Nov. 9, the day after FTX death-spiraled and tried to sell itself to Binance, and has been reported before. But now Ellison is cooperating with prosecutors and regulators, so we have their version of her version of the meeting and, oof. Here is how the US Commodity Futures Trading Commission describes it:

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On the morning of November 9 at approximately 10 AM ET, after the announcement of the then-contemplated Binance acquisition, Ellison held an “all-hands” meeting with Alameda staff. In that meeting, Ellison acknowledged that earlier that year, she, Bankman-Fried and other individuals had decided to use FTX customer assets to pay Alameda’s debts, and that Wang and another FTX executive were aware of this. Specifically, in that meeting, Ellison stated that, “starting last year” Alameda was “borrowing a bunch of money by open term loans” and used those assets to “make very illiquid investments.” Ellison further explained that following the widespread decline of digital asset prices most of Alameda’s loans had been recalled and, in order to meet those recalls, Alameda borrowed “a bunch of funds” from FTX, which in turn “led to FTX having a shortfall in user funds.” Ellison informed Alameda staff that FTX had “always allowed” Alameda to borrow customer assets, and did not require collateral for those loans. She also explained that Alameda could access user assets without requiring FTX’s approval as the “structure” allowed Alameda to “go negative in coins.” In response to an employee question, Ellison also acknowledged that her November 6 tweet to the Binance CEO offering to buy his FTT holdings at $22 per token was “kind of a misleading thing to tweet” and expressed remorse. Shortly after this meeting, most of Alameda’s staff resigned.

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“Go negative in coins” is an incredible euphemism, really. The idea is that Alameda could deposit, say, 1,000 Bitcoin at FTX, and then it would have a balance of 1,000 Bitcoin. And then it could withdraw, say, 3,000 Bitcoin from FTX, and then it would have a balance of -2,000 Bitcoin. If you have a negative balance at your bank, bad things happen. When Alameda had a negative balance at FTX, that was just fine. Until it wasn’t.

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