Oct 10, 2023

Former Alameda Research CEO Caroline Ellison, the prosecution's star witness, is set to take the stand today in FTX founder Sam Bankman-Fried's criminal trial.

Video transcript

The prosecution's star witness is set to take the stand in Sam Beman Fried's criminal trial today. Joining us to discuss is the founder of Hot, a law firm, Sasha Hotta welcome, Sasha. Hey, thank you. Great to be on. So the circus sort of gets into overdrive today because the uh elevator research, Ceo Caroline Ellison is expected to testify. Uh What do you think jurors will need to hear from her? Well, you know, they've already heard so much from Gary. Gary Wong and some of the other witnesses. Um I think, you know, it's, it's said that her testimony is going to be one of the most consequential testimonies. But, uh I think, you know, everything's already come out in the first couple of days of trial even though we have five weeks to go. But I think the government will try and paint Caroline as a sympathetic witness. You know, she was the ex girlfriend, she was lovestruck, she was following this, you know, incredible leader that, uh, you know, led her to do criminal activities. And we, you know, when you look at the finances of it, she was only, she only made 6 million which is still, you know, a ton of money in normal terms. But compared to what some of the other withdrew in loans from Alameda, her amount is, you know, pale in comparison. So I think she's going to be more sympathetic, but I think then the defense council is going to try and paint her as completely incompetent, you know, pin the whole mess on her, her poor trading strategies. Sam asked her to put a hedge on at one point that would have, you know, saved a lot of money but she didn't listen. But, you know, but even that it's like, well, they wanna paint Sam as not being in charge of alameda. But if, if he's telling her what to do, then you know who's really in charge and responsible. Yeah, like it's a, it's a, it's a strategy of, hey, you know, no one was in charge. So that's, that's why I'm I'm innocent. It's an interesting strategy at this stage, but that's some people would have allowed to go for. But you know, you mentioned, you know, Gary uh Yang, of course, Gary Wang and he did indeed receive significant amounts of loans and, and now we've got the uh lawyers for Sam Batman Fried wanting to quiz him about his reliance on legal advice with regards to those loans. Uh What do you, what do you think's going on there with the defense strategy? Well, yeah, I mean, he, his loans, I think they were, um, to the tune of $246 million. So, there, there's a lot from Gary's testimony that showed active, you know, participation and knowledge and consciousness that this was criminal activity. So, uh, you know, right, right away his testimony, it was just completely devastating for the defense team. You know, they asked him, did you commit financial crimes? And he said, yes, I committed wire fraud, securities fraud, commodities fraud. Who with, oh, Sam Beman, Fried Caroline Ellison and Nishad Singh. And then they asked, you know, what did you do? And he said, we gave special privileges to Alameda and we lied about it and we allowed Alameda to withdraw unlimited amounts of FTX customer funds. So, you know, it was just a real shock and awe strategy by the prosecutors and the jury was probably sitting there thinking, you know, how much more do we need to hear about this to, you know, for another five weeks? Like, there's all the answers we need to find, you know, everyone guilty. But the, the cooperating witnesses, you know, they'll get these five K letters at the end. So it's, it's likely, or it's unlikely that they'll see any time behind bars, um, for the, for the Act of their cooper and by five K letters, you mean that? Yeah. Well, they get so in the southern district of New York they get these, the prosecutors will write letters to the judge about the witnesses and say, they can't say exactly like don't sentence this person, but they can say this person was very cooper or they can just talk about the person's behavior. It matters who came to the prosecutors first and who gave the most evidence that was useful. If someone just came in and said the exact same thing that the prosecutors already knew, then it doesn't really help the case. But if they gave them, you know, new information that was able to be used to prosecute, um, you know, Sam, then, then that's going to be looked upon very favorably for them. Caroline Ellison's testimony, it seems is going to be focused on the idea that Sam Beckman Fried ultimately made all the decisions at FTX. And it looks like the defense is making the argument that no Caroline Ellison made a lot of decisions and they were just terrible. She was really bad with risk management, et cetera. Who do you think would ultimately win that battle? I think Caroline will just because, because of her co-operation and because of the optics, you know, we've read her diary, she, she admits she wasn't a great leader and, you know, it wasn't her that asked to have that special privilege coded into Alameda and it wasn't her that went and spent all the customer money frivolously. Um So, you know, even if she maybe wasn't the right person to be a CEO of a major company like this why was she put in that position? Well, it was, seemed to be largely because of their love connection, which, you know, Sam, Sam Bank and Fried is the one that decided to make her CEO of a company that he owned and benefited from and asked to have a big, you know, $65 billion unlimited line of credit to his other company's customer funds. So, I, I don't see Caroline as, as the real, um, terrible person here and I don't think the jury will either. Uh S Sasha, your, your day job is not necessarily AAA criminal lawyer, although we're all sort of playing one at the moment. Uh You, you focus really on helping crypto clients navigate the US regulatory landscape. So tying these two ideas together, you know, what do you think this SPF trial could have on the outlook for regulation? Well, I think it's already wreaked havoc in the US because the banking, the regulators that regulate the banks have, have pretty much shut down any opportunities for crypto. You know, Silvergate Bank, the one that, you know, came up quite a bit in, in, I think it was uh one of the earlier testimonies by, by Adam Y Ya, um showed, you know, that was the bank for Alameda and that was on the wire transactions when people were submitting wires to FTX. But, uh, but, you know, Silver Gate getting shut down and, you know, all the pretty much all the banks that operate for crypto have closed. So it's made it a really challenging environment for us companies to operate, whether they're within the securities laws or not, if they don't have access to a bank, um, you know, it's, it's pretty impossible to do crypto to fiat conversions.

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