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Caroline Ellison, the star witness in the trial against Sam Bankman-Fried, said the FTX founder had directed her and her ex-colleagues to steal roughly $10bn of customer deposits from the exchange to fund risky investments and repay loans.
The damning testimony from Ellison, the former head of Bankman-Fried’s trading firm Alameda Research and his one-time girlfriend, is set to be a pillar of the government’s criminal case against the former cryptocurrency tycoon.
Ellison took the stand just after 12.30pm local time in Manhattan, wearing a grey jacket over a red dress. When prompted by prosecutors, she calmly identified Bankman-Fried, referring to him as “Sam” in her responses.
“He directed me to commit crimes,” Ellison told the jury. “He was the one who directed us to take customer money and repay our loans.” She previously pleaded guilty to fraud and agreed to co-operate with prosecutors.
FTX collapsed in November after it was revealed that Alameda had secretly siphoned off billions of dollars in customer deposits on the exchange.
“Alameda took several billion dollars . . . from FTX customers,” Ellison said. She admitted to sending “balance sheets to [Alameda] lenders at the direction of Sam . . . that made Alameda’s balance sheet look less risky than it was”.
Ellison is the most anticipated witness in the trial and a pivotal figure in the collapse of FTX. She said she “didn’t feel good about” loan arrangements that made the trading firm “riskier”, but testified that she always deferred to Bankman-Fried on big decisions.
“The whole time that we were dating, he was also my boss at work, which created some awkward situations,” Ellison said.
She added that the relationship ended after she made it clear that she “wanted more” from Bankman-Fried, who was “distant” with her.
Ellison also testified that she was never given any equity in Alameda, despite asking Bankman-Fried, who “said it was too complicated”.
The 28-year-old, who will return for further questioning on Wednesday, revealed that a year before FTX collapsed Bankman-Fried had asked her to model what would happen to Alameda in a “tenth percentile scenario” where crypto markets crashed 50 per cent and the exchange was shaken by bad publicity.
She said Bankman-Fried ordered the market war game because he was contemplating making another $3bn in venture capital investments — and he ultimately did, which made Alameda’s position even riskier. With the extra investments, Ellison predicted it would be “much less likely or almost impossible” for Alameda to repay its outstanding loans in the downturn scenario.
“In trading, tenth percentile scenarios happen every day,” Ellison said. She walked the jury through notes sent to her by Bankman-Fried and a spreadsheet that she created to analyse the scenario, which she said she discussed with Bankman-Fried. She said her model assumed “Alameda would use FTX customer funds” to help repay its loans.
The episode foreshadowed the events that ultimately sank FTX a year later, undermining Bankman-Fried’s claim that he was not aware of the details of the risks Alameda was running.
Bankman-Fried met Ellison while they worked at trading firm Jane Street, and he later recruited her as one of the first traders at Alameda Research in 2018.
She was named co-chief executive in 2021, along with fellow trader Sam Trabucco, when Bankman-Fried gave up the title to focus on FTX, and to avoid questions about conflicts of interest between the two groups. Ellison took sole charge of Alameda last year when Trabucco left.
Bankman-Fried has implicitly laid much of the blame for FTX’s failure at Ellison’s feet, claiming that he was unaware of the depth of Alameda’s financial distress and the scale of its borrowing from FTX until shortly before both companies collapsed.
Bankman-Fried’s bail was revoked and he was sent to jail over the summer after the government alleged he had provided Ellison’s private writing to journalists at The New York Times to intimidate her — an allegation he denies.
When it came to his political donations, Ellison testified that Bankman-Fried “said he thought it was very effective . . . that he could get very high returns in terms of influence”, adding that the defendant had contributed $10mn to Joe Biden’s presidential campaign.
Bankman-Fried told her there was a “5 per cent chance he’d become president one day”, Ellison said. Asked by prosecutors what she had meant by president, Ellison said: “of the United States”.
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