SBF and Alameda CEO Caroline Ellison spoke about red flags at FTX 3 months before the collapse

Questions mounted about the exchange’s relationship with Alameda Research, the trading firm he founded and behind the cryptocurrency exchange collapse. At the time, however, Bankman-Fried made an effort to allay concerns and agreed to an extensive interview. Bloomberg News also spoke to Alameda CEO Caroline Ellison, who typically avoided the limelight.

Bankman-Fried lost his usual nervous boast when he was shoved about Alameda’s ties to the stock market. He often searched for words and did not give direct answers to a simple question about where he lived. He claimed the companies were adequately regulated and kept at arm’s length.

We now know that much of what he said was untrue – or highly misleading at best. Documents filed in FTX’s bankruptcy show a free-running company fraught with conflicts of interest, self-dealing and very little control over what happens to customers’ money. Funds were poorly tracked. Leadership was arbitrary. Sensible oversight seems to be virtually nil.

What actually happened behind the scenes of the shattered crypto empire is still being pieced together in court. But the massive gulf between what Bankman-Fried said – and what was happening at the company he ran – has shaken investor confidence and rocked the industry by raising doubts about the solvency of other cryptocurrency firms.

Here’s what Bankman-Fried and Ellison said and how it aligns with what has since been disclosed. Some of the comments appeared in a September Bloomberg News story about the potential conflicts of interest at FTX and Alameda.

About FTX’s relationship with Alameda

Bankmann-Fried: “To this day there aren’t that many there anymore. You know, they obviously originally came from the same place. Or, you know, the same kind of original people… Most of the remaining Nexuses have fallen away… Obviously I know the people of Alameda quite well, but there aren’t that many, you know, ways we actively work together, like that… Alameda is a completely separate entity.”

“These are different offices, like different main offices. We don’t have common staff. We’re not the same company either… We’re not all under the same umbrella or anything.”

“I don’t trade partly because I don’t have time. It’s a full-time job running FTX,” he said. “But even if I had time, I wouldn’t do it because I wanted breakups.”

Ellison: “They both obviously belong to Sam. So ultimately a kind of coordinated incentives in this way. We keep them fairly separate in terms of day-to-day operations. We definitely have a chinese wall in terms of information sharing to make sure nobody in Alameda gets customer information from FTX or anything like that or any kind of special treatment from FTX. They really take this quite seriously.”

Alameda and FTX were indeed closely intertwined. In a bankruptcy filing Thursday, court-appointed CEO John J. Ray III said there was no independent governance of Alameda — which was 90% owned by Bankman-Fried — and FTX, noting that the trading fund was an exception certain parts of FTX have logs of client funds liquidation. FTX imploded after revealing a roughly $8 billion shortfall on its balance sheet and reportedly using FTX customer funds to fund risky bets from Alameda.

About internal controls

Bankmann-Fried: “We have — I don’t remember the exact numbers, but I’d like to say there’s about 100 people involved in compliance at FTX.”

It is unknown how many compliance staff – or even employees – FTX actually had. In the bankruptcy filing, Ray said the company was unable to provide a full list of who worked for it and in what capacity, adding that responsibilities were unclear. But it paints a damning picture of the entire company’s management. “From the compromised system integrity and flawed regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, inexperienced and potentially vulnerable individuals, this situation is unprecedented,” he wrote.

About the living conditions for employees of FTX, Alameda

Bankmann-Fried: “I hesitate because I – I mostly sleep on the bag. Not me, it’s legitimately not the case that I, you say – exactly I’m alive. Yes. So I hang out in this apartment a lot, after – after work – I live in – technically I live in one – technically I live alone but don’t sleep there – I mostly sleep on sofas and bean bags – but, but yeah. ”

In a separate interview with David Rubenstein, Bankman-Fried said he lived with colleagues in a “big apartment” near the office. Alameda and FTX shared a corporate campus in the Bahamas.

To regulate FTX

Bankmann-Fried: “We are by far the most regulated crypto exchange. We are, by definition, regulated by more regulators than any exchange of any kind.”

“I think it’s historically been the case that crypto has been much more lightly regulated and much less overseen than traditional finance. But I don’t think that’s really the case for FTX.”

Both FTX and Alameda lacked vigilant regulatory oversight, and the exchange’s decision to base itself in the Bahamas subjected them to regulations different from those in the US, which has strict rules for handling client accounts. So it was wrong to say that it was subject to more regulation than any other exchange. Although FTX US fell under the purview of regulators, crypto investors lack many of the protections they take for granted on savings accounts or even exchanges. Now, employees and customers with assets on the platform don’t know if they’ll ever get their money back.

About auditors

Bankmann-Fried: “We’re being tested. We have financial audits for both FTX US and FTX International. Each year. In turn, we have oversight from a number of the largest jurisdictions in the world.”

Only parts of Bankman-Fried’s empire have been examined, and their quality has been called into question. While bankruptcy filings show FTX has been under scrutiny, Ray, the company’s new court-appointed CEO, said he has “significant concerns about the information contained in the financial statements.” One of the auditors, Prager Metis, describes itself on the Decentraland platform as “the first CPA firm to officially open its Metaverse headquarters.” “I do not think it appropriate for stakeholders or the court to rely on the audited financial statements as a reliable indication of the companies’ financial condition,” the filing concludes.

Performance

Ellison: “I think he’s obviously an amazing leader and that’s what drew me to Alameda in the first place and I think that’s why both Alameda and FTX have been kind of successful so far.”

“I’m excited to see what he does next with FTX. And in the crypto space more broadly.”

Bankman-Fried stepped down from his role as CEO and his company’s collapse has drawn comparisons to the notorious failures of Enron and Lehman Brothers. American and Bahamian authorities have discussed the possibility of bringing him to the United States for questioning.

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