On the sixth day of Sam Bankman-Fried’s fraud trial, Caroline Ellison, his ex-girlfriend and colleague, described how relief washed over her when the FTX cryptocurrency exchange collapsed.
Ellison, the former CEO of Alameda Research, the hedge fund associated with the company, broke into tears as she described FTX’s final days in testimony Wednesday. She said that, during last year’s cryptocurrency crash, Bankman-Fried directed her to illegally appropriate FTX customers’ money and lie to its many lenders.
“This was kind of something I’d been dreading for so long … and I just, I felt a sense of relief that I didn’t have to lie anymore … that I could take responsibility,” Ellison said.
Ellison offered an inside look at FTX and Alameda’s collapse in her testimony and shed light on how her relationship with Bankman-Fried affected both.
The two had broken up in early 2022, and Ellison said she was avoiding social settings and one-on-one conversations with Bankman-Fried when the crash started in May 2022. Ellison said she was worried that the crytpo downturn would bring down Alameda because many of the hedge fund’s lenders had open-term loans, which meant they could call them – and ask for their money back – at any point. The crash left Alameda in the lurch after the value of its crypto assets evaporated.
Lenders started to call loans in June. Alameda was obligated to repay them immediately. It was billions of dollars short, Ellison said. She testified that Bankman-Fried blamed her for the financial disaster, yelling at her in the penthouse apartment they shared.
“Sam started saying … it was a big mistake, and that it was my fault, and that I was largely responsible for the financial situation Alameda found itself in,” Ellison said.
Ellison also prepared various documents showing Alameda’s financials. Around the time that loans were being recalled, as Alameda was getting a cash injection from FTX, the hedge fund owed FTX around $10bn. The federal prosecutor Danielle Sassoon asked Ellison about her mental state at the prospect of repaying loans with money she didn’t have.
To cover the shortfall, Alameda used FTX customers’ money but did not tell them, Ellison said, an action she described as “Sam’s decision” that she “thought was wrong”. She repeatedly said that Bankman-Fried had set up a system to shuttle FTX customer funds to Alameda to cover loan expenses and make investments, all without notifying FTX customers, in her testimony the day before.
“I was in sort of constant state of dread. At that point, I knew we’d have to take the money from our FTX line of credit,” Ellison said. “Every day I was worrying about the possibility of customer withdrawals from FTX and the possibility of this getting out.”
Sassoon also asked Ellison about Bankman-Fried’s philosophy on rules. According to Ellison, “He said that he was a utilitarian and he believed that the ways that people try to justify rules like ‘don’t lie’ ‘don’t steal’, under utilitarianism didn’t work.” He also warned FTX employees and executives about “not putting stuff in writing that could get us in trouble”, she said.
This viewpoint began to affect her own, she said.
“It made me more willing to do things like lie and steal over time,” Ellison said. When she started working at Alameda, she wouldn’t have believed it if people had told her that she’d lie on balance sheets and steal from customers, she testified. On a Google Doc Ellison made amid the collapse, the header was “Things Sam is freaking out about”, which included “bad PR in the next 6 months”.
Ellison testified on Tuesday that she committed multiple crimes at the direction of Bankman-Fried while working for Alameda. Bankman-Fried faces seven fraud and conspiracy counts for allegedly cheating customers out of $10bn. He has pleaded not guilty.
Ellison’s testimony also offered a glimpse at the inner workings of FTX and Bankman-Fried’s carefully curated public persona. He cultivated relationships with reporters and maintained a Twitter presence as part of his effort to present himself as a “very smart, confident, somewhat eccentric founder”, Ellison testified.
He put little effort into his appearance, Ellison said, dressing sloppily and rarely cutting his hair.
“He said he thought his hair had been valuable,” she continued, saying Bankman-Fried had kept it astray since his time as a trader at Jane Street. “He said he thought he’d gotten higher bonuses because of his hair.”
Ellison and Bankman-Fried were in an on-again-off-again romantic entanglement starting in 2018. The two resided in a $40m Bahamas penthouse with other FTX executives at the time of the exchange’s collapse.
In addition to their opulent accommodations, they were both assigned “luxury company cars” while in the Bahamas. But, with PR in mind, Bankman-Fried switched his vehicle.
“He said he thought it was better for his image to be driving a Toyota Corolla.”
Ellison pleaded guilty to wire fraud and conspiracy charges in December 2022 for her role in the stunning collapse of FTX and Alameda.
