During a video call in early November, employees at Alameda Research called to ask about the fate of the company, when it was reported that they were on the verge of collapse.
Caroline Ellison is the one in charge of spreading the bad news. Alameda is at the heart of Sam Bankman-Fried’s crumbling FTX empire. Meanwhile, Ellison, who had just turned 28, stood at the center of Alameda. Both fell into crisis.
Alameda and cryptocurrency exchange FTX are both the brainchild of Bankman-Fried, a friend of Ellison. Sam chose Ellison to help lead Alameda a year ago. For a while, they steered the two organizations together through the crypto boom that eventually led to FTX reaching a blockbuster valuation of $32 billion. But this month, it all fell apart in just a few days.
As customers grew increasingly concerned about the financial health of companies, they frantically withdrew their funds from FTX in a short time. The companies were all struggling to stay afloat, and they filed for bankruptcy shortly after Ellison’s call with employees. Bankman-Fried has also stepped down as chief executive officer of FTX.
Prosecutors, regulators and even the new CEO of FTX are investigating what happened. Customers are completely hopeless, they think they will never see their money again. Lawsuits followed, and many top employees left. Ellison was fired along with Gary Wang and Nishad Singh – also Bankman-Fried’s top deputies.
Before the bankruptcy, Bankman-Fried was attracting attention, promoting cryptocurrency and lobbying in Washington, while Ellison was more secretive. Alameda, a commercial company owned almost entirely by Bankman-Fried, has one sole purpose: Make money. And Ellison was tasked with keeping the company afloat.
In several podcasts and other public appearances, Ellison has summed up his rapid ascent almost by chance. She joined Wall Street right after graduating from Stanford University, majoring in math in 2016. Her first job was at quantitative trading firm Jane Street Capital.
There, Ellison met another colleague, about 20 years old, who was Bankman-Fried. Like her, he was raised by two professors. And like Ellison, Sam also appreciates a movement called “effective altruism” or the idea of making a lot of money to give.
When Bankman-Fried quit her job to open Alameda, Ellison was quick to take what she called “a blind leap into the unknown.” Caroline Ellison grew up in suburban Boston, the daughter of two MIT economists. At the age of 5, she read the second “Harry Potter” book by herself. At the age of 8, she wrote an analysis of the price of stuffed animals. Her father, inspired by his daughter, wrote basic advanced math textbooks for children.
Ellison, Bankman-Fried, Wang and Singh have formed the board of directors of what they call the Mutual Fund, with the goal of funding nonprofits and investing in “companies with social impact.” festival”. Bankman-Fried, Wang and Singh all own shares in at least some FTX companies, according to the new CEO’s bankruptcy court filing.
The Wall Street Journal reported earlier that at one point, Ellison and Bankman-Fried were romantically involved.
When Ellison arrived at Alameda, she was surprised. She once said on the FTX podcast: “The feeling at the time was like, oh, the process of doing things is just someone suggesting something and then someone coding and releasing it. An hour later and the process is done“.
Everything in Bankman-Fried’s orbit appears to be moving at the same dizzying speed. He founded Alameda’s sister company, FTX, in 2019 and it took just a few years to become one of the largest cryptocurrency exchanges in the world. For a time, Bankman-Fried was the CEO of both companies.
Alameda and FTX have employees in both Hong Kong and the Bahamas. According to a person familiar with the matter, Ellison, like Bankman-Fried, recently worked in the Bahamas for a long time.
One of Alameda’s trading strategies is arbitrage: Buy a coin in one place and sell it elsewhere for money. Meanwhile, FTX emerged as an important marketplace for investors large and small to buy and sell cryptocurrencies. As a major player in cryptocurrencies, Alameda regularly trades on FTX’s platform.
Around 2020, Alameda begins “yielding farming,” investing in tokens that pay interest-like rewards. At first, Ellison disagreed. During an FTX podcast in early 2021, she recalled the debate over whether the company should get involved and said she was concerned about the risk. “I lost that argument,” she said in the podcast.
Over time, Alameda’s aggressive trading strategies relied more on intuition and indicators like Elon Musk’s social media posts, according to Sam Trabucco’s 2021 tweets, when it was a Another rising star at Alameda.
In the fall of 2021, the price of cryptocurrencies has reached an all-time high and FTX is celebrating a new agreement for naming rights to the University of California, Berkeley football stadium. Bankman-Fried has appointed Ellison and Trabucco as co-CEOs to run Alameda so he can focus on FTX. According to Alameda’s press release at the time, the two new CEOs inherited a team of 25 people at Alameda.
Although Bankman-Fried is no longer CEO, Alameda is still his company. According to FTX’s bankruptcy filing, he owns 90% of Alameda shares. Wang owns the remaining 10%.
By early 2022, digital currencies are in free fall. Many of the largest investment and lending firms in the industry began to buck and fall. As panic swept through the crypto world, Bankman-Fried emerged as a rescuer, buying up some troubled companies and giving credit to others to help stabilize the market.
Behind the scenes, however, Alameda is not immune to crisis either. Bankman-Fried’s vaunted trading firm was also called on margin.
In August of this year, Trabucco said it would step down as co-CEO. In a lengthy Twitter thread, he said working at Alameda was “difficult, exhausting and time consuming”.
By early November, the troubles of Bankman-Fried’s companies began to surface. A CoinDesk report raises concerns about the financial health of Alameda and FTX. Changpeng Zhao, the head of rival exchange Binance, tweeted that his company would give up holding FTT as a risk management move. FTT is a digital currency of FTX.
When Zhao and Bankman-Fried argued on Twitter, Ellison tried to put out the fire. “If you are looking to minimize the market impact on your FTT sale, Alameda will gladly buy it all from you today for $22!” she tweeted, tagging the account Zhao. Minutes earlier, FTT was trading around $22.15, according to CoinDesk data.
When asked on Twitter why Ellison made such an offer, Bankman-Fried replied: “It’s up to her to answer, but they said they were worried about the impact this would have on them. Doing so is faster and easier.” However, the WSJ reported, Binance contacted Ellison about the offer but never received a response.
In the end, the close relationship between Alameda and FTX was ruined. FTX used customer funds to lend Alameda billions of dollars for risky trades and investments, as previously reported by the WSJ. In traditional finance, regulators require brokers to separate client funds from any capital they use to trade.
During a video conference in early November, held late at night Hong Kong time, Ellison told employees that FTX used customer funds to help Alameda pay its debts. She apologized for disappointing the staff. At that time, the financial problems of the companies were exposed to the public, but the companies had not yet filed for bankruptcy.
Ellison also told employees that she herself, Bankman-Fried, Singh and Wang were all aware of customers’ decisions to send money to Alameda.
The WSJ reported that many of Alameda’s employees quit the next day.