On the fifth day of Sam Bankman-Fried’s fraud trial, the prosecution’s star witness named the FTX founder as the ringleader of an alleged $10bn fraud scheme at the cryptocurrency exchange and its associated hedge fund.
“While you were working at Alameda, did you commit any crimes?” a prosecutor asked Caroline Ellison.
“Yes, we did,” she said. “[Bankman-Fried] directed me to commit these crimes.”
Ellison, 28, is the former paramour and business partner of Bankman-Fried, at times dating the 31-year-old and also serving as CEO of the hedge fund Alameda Research. The two lived together for a time, along with other FTX executives, in a massive Bahamas mansion. She arrived in court just after 12.30pm wearing a salmon-colored dress, glasses and a slate grey blazer.
During Ellison’s testimony, prosecutor Danielle Sassoon questioned the former Alameda CEO over her relationship with Bankman-Fried and how their actions led to the collapse of FTX. Ellison blamed Bankman-Fried for financial crimes at the company, alleging that he had ordered her to commit fraud and conspiracy. The prosecution’s line of questioning depicted Bankman-Fried as the mastermind of the operations at the companies, with Ellison stating that he was responsible for setting up the system that allowed Alameda to borrow from FTX illegally. Ellison testified that, while FTX was being audited, she raised concerns to Bankman-Fried that investors would find out how Alameda was using FTX customers’ funds without their knowledge, but that he told her not to worry about it.
A bit later, Sassoon asked: “Around how much FTX customer money did Alameda use to repay its lenders?”
“Uh, in the ballpark of $10bn,” Ellison replied.
Bankman-Fried and Ellison: partners in business and romance
Over the course of her testimony, Ellison told prosecutors about her history at Alameda – only her second full-time job – and how she went from meeting Bankman-Fried as a coworker at the trading firm Jane Street before becoming his on-again, off-again romantic partner. Ellison testified that, shortly after Bankman-Fried hired her at Alameda, she learned that the company was in worse financial shape than he had let on. She said that she once prepared a spreadsheet showing various risk scenarios which could cause Alameda to collapse but that Bankman-Fried dismissed her warnings. He instead insisted on spending money on large venture investments, she said. She also prepared misleading balance sheets that appeared “less risky” to show Alameda’s lenders, she testified.
The former CEO described wanting more from their relationship and often feeling that Bankman-Fried was distant or ignoring her. The two started sleeping together in 2018 soon after they met when Ellison was 23, entered into a serious relationship in 2020, briefly broke up in 2021, during which Ellison became co-CEO of Alameda, and then permanently split in 2022, Ellison said. The two kept their romantic life mostly secret from the company, she added, but eventually made it public and revealed that they were living together.
“The whole time that we were dating he was also my boss at work,” Ellison told the court. At one point during their time together, Ellison testified, Bankman-Fried discussed his ambitions and claimed there was a “5% chance that he’d become president”.
Ellison cooperated with federal prosecutors after pleading guilty
Ellison cut a deal with federal prosecutors in late 2022, pleading guilty to wire fraud and multiple financial conspiracy charges. She said in plea proceedings that she had “agreed with Mr Bankman-Fried and others to provide materially misleading financial statements to Alameda’s lenders”. Bankman-Fried faces seven counts of fraud and conspiracy charges in the trial. He has pleaded not guilty.
Prosecutors allege Bankman-Fried and those in his inner circle used money from FTX customers for personal expenses and Alameda’s investments and trades, which led to an $8bn shortfall at FTX after the value of nearly all cryptocurrencies plummeted in 2022. The exchange and the hedge fund eventually filed for bankruptcy.
Bankman-Fried’s defense has yet to cross-examine Ellison, but his attorneys appear likely to paint Ellison as a scorned lover and an incompetent businesswoman. The defense has questioned witnesses about a request from Bankman-Fried for Alameda to place a hedge to protect against market downturns, a directive that she did not follow. Bankman-Fried himself has leaked documents about her to the press. Judge Lewis Kaplan revoked the FTX founder’s bail and sent him to prison after entries from Ellison’s journal were published in the New York Times, finding probable cause for allegations of witness tampering.
FTX’s co-founder also testified against Bankman-Fried
The day began with testimony from Gary Wang, an FTX co-founder who first took the witness stand last week and has pleaded guilty to wire, securities and commodities fraud. Wang testified that Bankman-Fried was not surprised to find that FTX faced enormous financial shortfalls when the exchange’s collapse began in 2022.
In Wang’s cross-examination, defense attorney Christian Everdell posited that Alameda’s financial situation and its operations were not as dire as prosecutors had presented. Everdell stated that Alameda used only a fraction of its massive line of credit with FTX. He also questioned Wang on the company’s own crypto coin, FTT, which prosecutors have alleged Bankman-Fried used to cover up Alameda and FTX’s financial failings. As the cross-examination continued, Everdell pressed Wang on the decisions Ellison made as Alameda’s CEO, asking about whether she had insulated the fund from market shocks.
Defense attorneys have attempted to cast Bankman-Fried as a simple, wayward boy genius who never intended to hurt anyone. One of his lawyers called him “a math nerd who didn’t drink or party”. The prosecution, by contrast, has depicted Bankman-Fried as a greedy svengali who manipulated his business associates, including Ellison, for his own financial gain.
Adam Yedidia, an FTX developer who was close to Bankman-Fried, testified last week: “Sometime in early 2019, the defendant told me that he and Caroline had had sex and asked if it was a good idea for them to date.”
When a prosecutor asked what he thought of the arrangement, Yedidia said:, “I said no.”
