- Caroline Ellison, one of Sam Bankman-Fried’s top deputies and also his ex-girlfriend, testified Wednesday that she felt relieved when his crypto empire started to collapse because it meant she could stop lying.
- She noted the CoinDesk scoop that undid the company, saying the crypto news site’s scoop was based on a balance sheet Alameda sent to lenders to mislead them into thinking the trading firm was on more solid financial footing than it really was – though the numbers were ugly enough to spark the collapse.
- Ellison said Bankman-Fried instructed her to use FTX customer funds to repay Alameda’s lenders despite recognizing the risk.
- She disclosed an unrelated bribery incident with Chinese officials to retrieve locked funds, highlighting the trust Bankman-Fried had in her.
NEW YORK — Caroline Ellison wept on the witness stand near the end of her second day testifying against her former boss and ex-boyfriend, fallen cryptocurrency mogul Sam Bankman-Fried.
The diminutive and soft-spoken former CEO of Alameda Research described the unraveling last November of her hedge fund and its sister company, the FTX exchange, and the “relief” she felt as revelations about their fraud became public.
“I felt a sense of relief that I didn’t have to lie anymore,” Ellison testified.
Her voice trembled and cracked as she recalled one particular text message exchange between her and Bankman-Fried during what she described as the “overall worst week of my life."
"I felt indescribably bad about all the ... people that lost their jobs ... and the people that trusted us that we had betrayed," Ellison told the packed courtroom as she reached for a tissue.
Bankman-Fried, the defendant, did not look up as she wept, but kept typing on his court-issued laptop.
It was the second day of testimony for Ellison, the former Wall Street trader and star witness in the government’s criminal fraud case against Bankman-Fried.
Read more: Who Is Alameda Research's Caroline Ellison?
The smoking gun
During her testimony, Ellison discussed the document that caused Bankman-Fried’s companies to collapse: the balance sheet CoinDesk’s Ian Allison reported on exclusively on Nov. 2, 2022.
She said that balance sheet was a version of the one Alameda sent to its lenders, designed to mislead them into thinking Alameda was healthier financially than it really was. On Wednesday, she called it a “dishonest” document.
But even the fudged numbers were ugly enough – brimming with FTX’s FTT token and other tokens closely related to Bankman-Fried – to raise questions about how viable Alameda and FTX were.
“It understated the true extent of Alameda’s risk, but it still showed that Alameda was in a fairly risky position,” Ellison said of the balance sheet.
CoinDesk has won three journalism awards for its reporting that set off the chain of events leading to FTX’s collapse.
‘Sam told me to’
Bankman-Fried told Caroline Ellison to continue repaying Alameda Research’s lenders with FTX customers’ money, which she did despite misgivings, she testified Wednesday.
In May 2022, the Luna crypto token’s decline led to a broader market downturn which caused several of Alameda’s creditors to call back loans that they’d made to the Bankman-Fried–founded trading fund, Ellison testified.
“I was in a constant state of dread,” she said. “I knew we would have to take the money from our FTX line of credit and that was money that could be called in at any time.”
Asked why that money was particularly risky, Ellison said it “was coming from FTX customers” who could try to withdraw it at any time.
Ellison said she grew increasingly worried throughout the spring of 2022 that Alameda’s reliance on FTX customer funds could lead to catastrophe for both firms.
“I was concerned that if everyone would find out, then everything would come crashing down,” Ellison said.
In spite of her concerns, Ellison testified that she continued to pay back lenders via Alameda’s FTX line of credit – which meant using FTX customer funds – “because Sam told me to.”
“I thought it was wrong,” she told prosecutors.
Bribing Chinese officials
In the most salacious bit of testimony Wednesday, Ellison said she and a handful of FTX and Alameda executives “paid a large bribe to Chinese officials” to secure funds that had been locked on Chinese exchanges. Neither FTX nor Alameda was involved in the investigation – which Ellison said involved an entity which at one point traded with Alameda, and was being probed for money laundering.
(Judge Lewis Kaplan, who is overseeing the Bankman-Fried trial, said the bribery anecdote was relayed to the jury to illustrate Bankman-Fried’s “trust and confidence” in Ellison and to speak to “motives” – not because Bankman-Fried was being charged with crimes in relation to alleged bribery. He did not mention that Bankman-Fried is currently scheduled to go on trial again next spring on bribery and other charges.)
After the FTX/Alameda team initially failed to secure the funds through negotiation with the Chinese government via lawyers, Ellison said they then tried – and again failed – to release the funds through a scheme involving the creation of fake exchange accounts using the identities of “Thai prostitutes.”
Ellison said Ryan Salame — another ex-FTX executive who’s pleaded guilty to charges — told her the names.
Finally, the funds were secured after Ellison made a payment of $100 million to a crypto account which, to her understanding, was tied in some way to Chinese government officials. Ellison recalled an incident when an employee protested against the plan in a meeting: Bankman-Fried grew increasingly annoyed with the employee, whose father was a Chinese government official, and eventually told her to "shut the f*** up."
In a private “State of Alameda” memo Ellison authored in November 2021, shortly after the payment was made, she included a bullet point titled “-150m from the thing?” under a section detailing “notable/idiosyncratic” financial events. The entry, she said, referenced the payment to Chinese officials: “I didn’t want to put in writing that we paid what I believed were bribes,” she testified.
Before breaking for lunch, prosecutors teased the jury with another memo authored by Ellison – a personal to-do list. It contained the item: “getting regulators to crack down on Binance.”
Binance is the world’s largest crypto exchange and, in the aftermath of FTX’s November 2022 collapse, U.S. regulators have accused it of wrongdoing.
“Sam said that he thought that was one of the best potential ways for FTX to increase market share,” Ellison said. “Regulators had been promising him this would happen for a while.”
Alameda had by mid-June 2022 borrowed 77% of the $13 billion of customer U.S. dollar deposits into FTX, according to an internal FTX spreadsheet introduced by prosecutors and authenticated by Ellison. Ellison said she asked FTX executives Gary Wang and Nishad Sing to gather the data for her when she grew concerned about the size of Alameda’s borrowings from FTX.
By this point in June, the data showed Alameda had borrowed 52% of all ETH deposits, 44% of USDT deposits and 25% of BTC deposits into FTX – as well as all of the Australian dollar and BRZ deposits into the exchange. (BRZ is an Ethereum token backed by Brazil’s currency, the real.)
When Genesis, a major Alameda lender, asked Ellison if she could provide documentation of Alameda’s financials, Ellison said she and Bankman-Fried worried that providing accurate financials would “show that Alameda was risky,” so the pair devised strategies to improve the look of Alameda’s financial position. (Genesis, now defunct, is a subsidiary of Digital Currency Group, which also owns CoinDesk.)
At one point, said Ellison, Bankman-Fried suggested Alameda could “put employees’ personal SRM tokens on its balance sheet” and take other measures to inflate the firm’s assets. SRM is a token on the Solana blockchain that Bankman-Fried had created and distributed, in part, to employees, according to earlier court testimony.
Ellison said that she and Bankman-Fried were still concerned that the new balance sheet they’d assembled would scare Genesis, so she went on to create “seven different, alternative balance sheets” for the pair to consider sending to the lender. Ellison walked through some of the balance sheets in court and detailed the different strategies she used in an attempt to hide Alameda’s risky financials.
“I didn’t want to be dishonest but was afraid to share the truth,” Ellison testified.
A princely sum
FTX considered raising capital from Saudi Arabian Prince and Prime Minister Mohammed Bin Salman, Ellison testified.
At that time, around June 2022, Alameda Research got into trouble after a broader decline in the crypto market that summer led several of the hedge fund’s biggest lenders to recall their loans to Alameda, Ellison said.
According to text messages the prosecution showed from June 2022, crypto lender Genesis had asked Alameda to pay back $500 million “in $250 million clips.” In addition to that, former crypto lending desk Celsius also asked for its loans to be repaid.
It was after Celsius’ request that Sam Bankman-Fried said he was considering selling FTX shares to Bin Salman to raise more money to repay Alameda’s lenders, Ellison said.
Someone who answered the phone at the Saudi consulate in the U.S. hung up after a CoinDesk reporter asked about Ellison’s testimony.
The former Alameda CEO also recalled how Bankman-Fried had said that lying and stealing money were permissible in his worldview.
“He didn’t think rules like ‘don’t lie’ and ‘don’t steal’ fit in that framework,” she said.
She recalled becoming more and more used to doing those things and sending false information to business partners or taking FTX customers’ money.
“Over time, it was something I became more comfortable with while working there,” she said.
To avoid “legal trouble,” Ellison used vague language in an internal FTX document detailing how much Alameda had taken from the now-bankrupt crypto exchange, she testified.
Prosecutors introduced as exhibits spreadsheets created by Ellison detailing Alameda’s financial balances. The documents, according to Ellison, showed that Alameda had taken more than $10 billion from customers of FTX by May 2022.
Asked why this money was labeled “FTX borrows,” Ellison said she was following orders from Bankman-Fried. “I didn’t want to say explicitly ‘FTX customer money,’” she said on Wednesday.
Bankman-Fried “told us not to put things in writing that might get us in legal trouble.”
SBF’s valuable (lack of a) haircut
At one point, prosecuter Danielle Sassoon presented a picture of Bankman-Fried, asking Ellison to describe him. Ellison repled that it appeared he didn’t put much effort into his appearance. “He looked … sloppy,” she said. He “didn’t cut his hair often.”
And there was a reason for that, she recalled. The press and investors frequently took Bankman-Fried’s appearance as a sign that he was a typical Silicon Valley nerd who knew how to code but didn’t care much about fancy designer clothes or cars, which is exactly the image he wanted, Ellison recalled.
“Sam said he had gotten higher bonuses because of his hair,” she said. He had told his colleagues at his companies that his hair "had been very valuable to his career," she added.
It was also better for FTX’s image, Ellison recalled him telling her, which was also the reason behind the two of them switching their cars from “luxury company vehicles” to much cheaper brands like Toyota and Honda.
Blow to defense
Judge Kaplan dealt a blow to the defense this week when he denied multiple requests from Bankman-Fried’s lawyers to mention his charitable giving and the lack of clear U.S. crypto regulations. That crypto exchanges are not regulated like securities trading venues is “irrelevant” and only likely to confuse the jury, Kaplan said.
Kaplan also ruled that the Bankman-Fried jury would not be able to hear about the likelihood of recoveries from the FTX bankruptcy.
After releasing the jury on Wednesday – just before the court adjourned for the day – Kaplan also sided in favor of a government proposal to bar the defense from mentioning FTX's sizable stake in Anthropic, an AI startup whose valuation has surged in recent months. The defense may have hoped to use the investment to show the jury that FTX could have survived if Bankman-Fried's investments had been given a bit more time to play out.
Kaplan wasn't convinced, however. "This is like saying that if I break into the Federal Reserve Bank, make off with a million bucks, spend it all on Powerball tickets and happen to win, it was okay," the judge said.
Day one recap
Ellison began her testimony on Tuesday, and opened by saying she committed crimes with Bankman-Fried by sending balance sheets that misstated Alameda’s assets and liabilities to the crypto hedge fund’s lenders and by taking FTX customer funds and using them to repay debts or for investments, to the tune of around $10 billion.
Things fell apart in November 2022, Ellison said, when asked Tuesday what happened when customers tried to withdraw their funds.
“Initially FTX was able to process some withdrawals, but pretty soon it started running out of money. Alameda tried to send more money to FTX, but there wasn’t enough to cover all the customer claims,” she said. This was “because Alameda had taken it to make our own investments and to repay our lenders.”
Over the course of her first day of testimony, Ellison walked the jury through how Bankman-Fried, despite naming her (and for a spell, Sam Trabucco) as CEO of Alameda, still largely retained control over the firm’s decisions, and how he disregarded her advice on issues like whether to expand FTX’s investment portfolio.
Alameda’s inability to sell large portions of the FTT token came up. Selling the token would have depressed the price enough to dramatically hurt Alameda’s credit with lenders, she said.
“Bankman-Fried gave us a lot of instructions about FTT; at various points he instructed us to buy if there was a large amount of selling or if the price was going down too much,” she said.
Jack Schickler contributed reporting to this story.
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