
The government’s main witness in the criminal fraud case against the creator of FTX, Caroline Ellison, the former head of Sam Bankman-Fried‘s cryptocurrency hedge fund, testified on Tuesday that she and her former employer had misled clients, investors, and lenders.
Ellison responded, “Yes, we did,” to the question from Danielle Sassoon, an assistant US attorney. Sam, myself, and others are included.
Ellison then listed her offenses from a courthouse in central Manhattan: “fraud, conspiracy to commit fraud, and money laundering.”
Ellison, the owner of Alameda Research, pleaded guilty to two counts of wire fraud, two counts of conspiracy for committing wire fraud, two counts of conspiracy to commit commodities fraud, two counts of conspiracy to commit securities fraud, and two counts of conspiracy to engage money laundering in December. Cooperating with the prosecution’s case against Bankman-Fried was a condition of the 28-year-old’s plea agreement with the government.
Before the court stopped for lunch, Ellison’s testimony, which began at 12:37 p.m., lasted less than 10 minutes. It started back up shortly after two in the afternoon and ran for two different blocks of an hour each. Ellison will probably testify for most of Wednesday as well, according to the prosecution.
Ellison gave a brief history of how she met Bankman-Fried while wearing a red dress, a loose gray blazer, and glasses. They first connected while she was an intern at New York-based proprietary trading firm Jane Street. She added that Bankman-Fried was her boss when they were dating and then worked together at Alameda for a few years.
In 2017, Ellison was one of Bankman-Fried’s first hires at Alameda. When the hedge fund was still operating out of its initial headquarters in the San Francisco Bay region, Bankman-Fried is said to have persuaded the Stanford graduate to quit her job at Jane Capital and join Alameda as a trader.
Ellison stood up when Sassoon asked him to name the defendant and surveyed the area for approximately 30 seconds. Before identifying Bankman-Fried as seated “over there and wearing a suit,” she repeatedly turned her head to the right, then all the way to the left to the jury box. Ellison had earlier passed by, but the two had not exchanged glances. Prior to the trial, Bankman-Fried, who was well known for his beach shorts and floppy hair, reportedly received a new haircut from a fellow prisoner in the Brooklyn jail where he has been detained since August.
According to Ellison, Bankman-Fried was Alameda’s first CEO and owner.
She claimed, “Sam ordered me to perform these crimes. He “told us to take money from customers to pay loans.”
Bankman-Fried, 31, is accused of seven federal offenses, including wire fraud, securities fraud, and money laundering. These offenses are all connected to the failure of FTX and Alameda in the latter part of last year. Bankman-Fried might serve his entire life in prison if found guilty in the trial that started last week. He entered a not-guilty plea.
“We really don’t have the money for this,”
The billions of dollars that went from customer accounts at FTX to Alameda, which had a huge hole in its balance sheet once the crypto markets turned in 2022, are at the heart of the case against Bankman-Fried.
According to Ellison, Bankman-Fried not only put up a scheme to steal the money from FTX consumers, but also instructed Ellison and others to utilize client money to pay back loans in the neighborhood of $10 billion. Alameda allegedly stole several billion dollars from FTX customers.
She stated, “We ultimately borrowed about $14 billion, some of which we were able to repay. “At Sam’s request, I sent balance sheets to lenders that misrepresented Alameda’s assets and liabilities.”
She said that the figures were changed to make Alameda appear to be a less risky investment.
Ellison was questioned about her friendship with Bankman-Fried after the lunch break. She claimed they started dating in the summer of 2021, despite occasionally sharing a bed earlier. The couple had an on-again, off-again romance up until the spring of 2022 when they finally called it quits.
Ellison claimed that soon after being hired, she learned that Alameda was in a lot worse condition than she had anticipated. Large losses had been incurred by the company, and numerous personnel had left.
When the practice of sending money from FTX to the hedge fund started, according to Ellison, Bankman-Fried was still the CEO of Alameda. Ellison claimed that because the quantities exceeded the exchange’s revenues and the amount of cash it had raised, she believed they were funds from FTX customers.
According to Ellison’s testimony, $1 billion in client funds were used by FTX to purchase interest in the firm back from competitor exchange and early investor Binance in the middle of 2021. That came after a face-to-face meeting between Ellison, Bankman-Fried, and Sam Trabucco, the co-CEO of Alameda.
Ellison remembers adding, “We don’t really have money for this.” “To do it, we’ll need to borrow from FTX.”
That was fine, Bankman-Fried assured her, since “we have to get it done,” as she put it.
the FTT token, please. The digital coin was invented by Bankman-Fried, and Alameda initially held 60% to 70% of the supply while paying nothing for it. When cryptocurrencies were first becoming popular, many projects produced their own money, which was frequently traded on different platforms like stocks.
The seed round pricing for the FTT token was set at 10 cents. The price was $1 when it went public on exchanges in 2019. The final trading price for FTT was around $50 per token, increasing Alameda’s investment to billions of dollars.
In order to obtain further loans from businesses like Genesis, according to Ellison, she was told to include FTT coins on Alameda’s balance sheet. Ellison testified that she believed the move to be deceptive, despite the fact that she said Bankman-Fried had convinced her it would be a separate item and everything would be fine.
Added to Alameda’s balance sheet were additional cryptocurrency tokens that the company internally referred to as “Sam coins.” Serum and Solana are two examples.
The almost $5 billion in personal loans that Alameda provided to insiders, including a $35 million loan to former senior FTX executive Ryan Salame that was used to support Republican political campaigns, was another issue that Ellison brought up. Ellison claimed that when completing Alameda’s financial statements, she became aware of the loans.
Because the loans were going to “really illiquid things like early-stage companies,” according to Ellison, she was worried about them. Due to the way the loans are structured, there is a chance that Alameda could be forced into bankruptcy at any time.
She said, “Sam told us to borrow as much as we could at whatever terms we could.”
According to Ellison’s study, Alameda had $9.4 billion in debts from outside lenders and $8 billion in liquid assets. The net asset worth after deducting “Sam’s coins” was negative $2.7 billion.
Bankman-Fried acquired notoriety for his significant political contributions, which he said were “very effective,” with “very high returns on the basis of influence by paying relatively small amounts,” according to Ellison. She cited Bankman-Fried’s $10 million donation to Joe Biden’s presidential campaign as one illustration.
In her testimony, Ellison stated that her base pay was $200,000 with two annual incentives that ranged from $100,000 to $20,000,000. Additionally, she received payment in FTX stock, which is equivalent to around 0.5% of the business.