Thai Sex Workers and Chinese Government Bribes

The founder of one of the largest crypto exchanges and trading firms, who shows how humble he is by driving a Corolla and being an “effective altruist,” uses cryptocurrency addresses from Thai sex workers as a strategy to recoup $1B in funds held in OKX frozen by the Chinese government, and ultimately bribes Chinese officials.

Does that sound like a fever dream or a dark comedy? Well, these are some of the confessions from former Alameda CEO, Caroline Ellison when she took the witness stand twice this week in the case against SBF.

And it just gets crazier…

The collapse of FTX, once the world's third-largest crypto exchange, was one of the biggest financial crimes in history, exposing the hidden (and deceitful) unregulated underbelly of the crypto industry.

There’s a lot to unpack here, so buckle up, you may be in for a ride…

A Sense of Relief

Caroline Ellison had to testify against the court twice this week.

On her first day, wearing a gray blazer and holding back tears, Ellison told the Jury that her position as a business executive at Alameda was practically useless as SBF was the mastermind behind everything.

Sam directed backstage. Some of his frequent commands were:

• How to use and move Alameda's funds, including bribing Chinese officials (which she claims she wasn’t aware of who were receiving the funds)

• How to talk to institutions and investors in case of suspicion

• Lie, mislead Investors, and pay Alameda lenders using FTX customer funds

• Borrow as much money as we could

• Come up with at least seven different versions of Alameda’s balance sheet to alleviate investors’ concerns when things get heated.

High-risk trades and the $10B debt

Ellison testified that it was Sam (and Sam Trabucco as well) who specifically directed her through the whole process, and when things started falling apart, she warned Sam about the state of Alameda's balance sheets and not hedging more on certain high-risk trades in early 2022. This was the beginning of the end —the $10 billion of outstanding third-party loans

Ellison said she felt a "sense of relief as I didn't have to lie anymore." She was being "too careful" not to reveal anything too specific or explicit when talking to investors via messages, fearing that written communication could bring legal repercussions in a court case.

Other colleagues and friends who testified against SBF

Ellison is not the only executive that has turned on SBF. Some of his closest friends including Gary Wang and Adam Yedidia testified against him in court last week. Other important names that turned on Sam were Rayan Salame, Nishad Singh, and Ramnik Arora.

Chinese Officials and Thai Sex Workers

We’re now on the second day of Ellison’s testimony.

Let’s go back to 2021. The Chinese government freezes $1B of Alameda's funds on Huobi and OKX.

According to Caroline, SBF and his team were trying to figure out a way to access the funds, so they came up with three totally legal and ethical solutions:

1. Hire lawyers to negotiate with Chinese officials and get the funds back

2. Use crypto addresses belonging to Thai sex workers to recoup the funds through several strategies

3. Resort to bribe Chinese officials with $100 million, an idea suggested by former Alameda employee David Ma.

Ellison states she didn't know to whom those accounts belonged, and that the order to bribe Chinese officials was given by SBF and Trabucco in a Signal conversation that was later deleted (by Sam's orders).

One Alameda employee, Handi Yang, opposed the decision before it was executed as her father was a Chinese government official. Sam coldly told her to "shut the f*ck up" in front of everyone.

After a month of Handi quitting the firm, Sam Trabucco jokingly asked in a Signal chat: "Did Handi's father immediately turn us in or something?" to which SBF responded “lol.”

The Saudi Crown Prince and the Messy Hair

Ellison revealed how Sam tried to pay FTX customers by raising money from Saudi Crown Prince Mohammed bin Salman.

Regarding Alameda, Sam commanded Ellison to pay lenders using "FTX's line of credit" —in other words, using FTX's customer funds, a vicious spiral of debt and misuse of funds.

There were also remarks about Sam's image. As per her statements, Sam was always worried about how people would perceive him, and Sam's hair was "very valuable" to him as it was a significant part of the narrative he was trying to push, alongside the crypto community's most famous Corolla, which he used as a PR stunt while living in a $30M+ penthouse.

Doctored Balance Sheets

"I didn't want to be dishonest, but I also didn't want them to know the truth”

We’re now close to the fall of Alameda/FTX, the summer of 2022.

Lenders and investors are concerned as the state of the cryptocurrency market deteriorates. They don’t often hear from Ellison or any representative from Alameda, and when they do, all they hear is elusive, negligent messages from the ex-CEO. This leads investors to take action and pressure Ellison to send Alameda's balance sheet and positions.

The solution? Sam told Ellison to come up with seven different versions of Alameda’s original balance sheet with doctored numbers and stats to make everything look less screwed up.

“In reality, Alameda's net asset value barely reached $6 billion on paper, having liabilities north of $14.9 billion" Ellison stated.

Danielle Sasson pulled a Tweet from SBF on June 27th, 2022, where he stated, "Backstopping customer assets should always be primary. Everything else is secondary."

Sasson asked Ellison if, at the time of this tweet, FTX was solvent to backstop customers, to which she responded "No." The truth is that FTX had around $6.9B in liquid assets, while total deposits on the exchange amounted to $15 billion.

Oops! Fat Fingers

As Ellison took the witness stand, other news broke out that revealed FTX/Alameda's shocking company culture and Sam’s modus operandi.

Former Alameda engineer Aditya Baradwaj has been posting several threads revealing how business usually went down at Alameda.

The engineer claimed Alameda lost $100M by clicking on a phishing link, which wasn’t the only time the firm got scammed.

According to Baradwaj, Sam praised speed. He believed that a startup like Alameda should be able to move “very fast” —so much that there would be a tradeoff: poor engineering and accounting practices.

This mindset and line of work led to three major incidents that no one but Alameda knew about.

1. An Alameda trader tried to execute a DeFi transaction and accidentally clicked on a fake link that had been promoted to the top of Google Search results, losing $100M.

2. Alameda started farming on a shady blockchain whose creator ultimately locked the firm’s funds hostage. After months of negotiation, Alameda lost over $40M

3. A plain text keys file was leaked, resulting in the loss of $50M

The thing is that the post-mortem and security measures were implemented after an incident took place.

“That's usually how things worked at Alameda — we would wait until something broke, and then rush to fix it. Which is why it took us so long to implement sanity checks that any ‘traditional’ trading firm would have never started trading without,” Baradwaj stated

$40B of Minted USDT and the Bitcoin Scheme in 2021

This week it was also revealed that Alameda minted over 40% of all USDT ever minted, raising concerns about the transparency of these transactions and the relationship between Alameda/FTX and Tether.

According to Coinbase Director, Conor Grogan, the trading firm minted approximately $39B in USDT, which is roughly 47% of the current circulating supply and is higher than Alameda’s total AUM at the peak of the cryptocurrency market.

In 2021, Sam Trabucco talked about how much money Alameda was making by being the largest arbitrage trader of USDT and profiting off the premiums.

“When it [USDT] diverges from $1 we [Alameda] can pretty safely put on big bets because, well, we do have the necessary setup to do large creations and redemptions when we want to.”

Trabucco said this was a win-win for both parties; Alameda profited off arbitrage opportunities, and USDT was sent back to $1.

And what about the price of BTC?

Ellison said Sam commanded her to sell Bitcoin out of FTX customers’ deposits if the spot price of BTC should break above $20k.

Why? No one really knows.

Closing Thoughts

I think we can agree that Ellison’s testimonies confirm that SB and his lackeys have reverted years of progress on several fronts, including regulations, institutional trust, and mass adoption, all thanks to the insanity of a few people, and to think that Sam actually wanted to become president of the United States.

He’s facing over 110 years in prison for up to seven charges of federal crimes.

And where is Sam Trabucco? He’s the only executive who gets off scot-free? Rumors say the FBI is looking for him in South America. But he’s completely out of the picture.