Caroline Ellison, a top adviser to cryptocurrency mogul Sam Bankman-Fried, testified Wednesday that she repeatedly lied at his request, misled the public about his dealings and distributed “dishonest” financial documents to crypto lenders.
When Mr. Bankman-Fried’s two companies — FTX, a digital currency exchange, and Alameda Research, a hedge fund — collapsed in November, the lies became unbearable, Ms. Ellison said, and the implosions were almost cathartic.
“Overall, it was the worst week of my life,” said Ms. Ellison, 28, fighting back tears as she recounted the hectic week as businesses failed. “I felt relieved that I no longer had to lie and could take responsibility, even though I was feeling incredibly bad.”
Ms. Ellison’s testimony on her second day on the witness stand was the most emotional moment yet in Mr. Bankman-Fried’s fraud trial. She was widely considered a key government witness, in part because she dated Mr. Bankman-Fried for years, giving her unique access to the FTX founder as his crypto empire grew. His trial in federal court in Manhattan has become a referendum on high-risk practices across the crypto industry that have led to billions of dollars in losses over the past year.
In the courtroom, Mr. Bankman-Fried, 31, did not visibly react to Ms. Ellison’s testimony. During a break in proceedings, he glanced at a group of reporters sitting in the gallery and raised his eyebrows.
Mr. Bankman-Fried was accused of orchestrating a scheme to turn FTX into his personal piggy bank. Authorities allege he stole up to $10 billion from FTX customers to fund venture capital investments, buy luxury real estate, make campaign contributions and pay off lenders to Alameda.
Ms. Ellison, Alameda’s chief executive, said she was one of Mr. Bankman-Fried’s main accomplices in funneling FTX customer funds into Alameda’s coffers. In December, she pleaded guilty to fraud and conspiracy and agreed to cooperate with prosecutors in return for leniency. Gary Wang and Nishad Singh, two top FTX executives, also pleaded guilty and are cooperating with the government.
Mr. Bankman-Fried pleaded not guilty to seven crimes, including a charge of defrauding lenders. If convicted, he could face life in prison.
Since FTX’s collapse, Ms. Ellison has faced far more public scrutiny than any of the other cooperating witnesses. She and Mr. Bankman-Fried lived together in the Bahamas, where FTX was based, and had a whirlwind office romance as FTX grew into a $32 billion crypto giant. On Tuesday, Ms. Ellison recounted intimate details of the relationship, including the tension it caused at work and her own fears about Mr. Bankman-Fried’s feelings toward her.
Returning to the stand on Wednesday, Ms. Ellison recounted the history of FTX’s financial woes. She told jurors that the stock market began to collapse in the spring of 2022 when the crypto market collapsed.
Ms. Ellison said she kept detailed spreadsheets showing how much Alameda owed its lenders and how much it relied on customer deposits from FTX to repay those loans in a worst-case scenario. She said she shared her analysis with Mr. Bankman-Fried.
The worst case occurred in June 2022, when Alameda’s lenders began demanding money back. Alameda’s own crypto assets had lost value during the market downturn, meaning the company had little opportunity to rehabilitate its lenders.
“At that point, I was in kind of a constant state of fear,” Ms. Ellison testified. At times her testimony became emotional, and a court officer handed her a tissue as she tried to stifle sobs. She said she was worried that “everything would collapse if the public found out that Alameda had accepted FTX customer funds.”
Even after she outlined the risks, she said, Mr. Bankman-Fried instructed her to use more customer deposits to repay lenders. Ms. Ellison said she followed his instructions even though “I knew it was wrong.”
To hide Alameda’s fragile financial position, Ms. Ellison said, Mr. Bankman-Fried told her to provide one of the company’s largest lenders – a crypto company called Genesis – with a misleading balance sheet in the summer of 2022 that concealed that Alameda had paid about $10 Billions of US dollars had been borrowed in FTX customer funds.
“I didn’t want to be dishonest, but I also didn’t want them to know the truth,” she said. She testified that she had sent similar “dishonest” financial statements to other lenders before FTX collapsed.
She separated from Mr. Bankman-Fried in mid-2022 and their working relationship also broke down. During a heated conversation with him in August 2022, she broke down and cried as he blamed her for Alameda’s financial problems, she testified. He accused it of not taking enough measures to reduce Alameda’s trading risks in the crypto market earlier this year.
“He spoke loudly and strongly,” she said. “I was very upset, started crying and had a hard time continuing the conversation.”
Ms. Ellison also testified about large payments Alameda made in 2021 to release $1 billion that the company had held in trading accounts on two Chinese exchanges. In March, prosecutors accused Mr. Bankman-Fried of paying tens of millions of dollars in bribes to the Chinese government to regain access to those accounts.
Prosecutors later decided to pursue the foreign bribery charge in a separate trial scheduled for next year. But the judge overseeing the case, Lewis. A. Kaplan allowed Ms. Ellison to discuss some of FTX’s efforts to release the funds while reminding the jury that Mr. Bankman-Fried is not charged with bribery in this trial.
Ms Ellison said a failed attempt to release the money involved trading accounts set up in the names of “Thai prostitutes”. After Alameda’s money was released, she said, she was careful about how she described the payments in internal documents.
“I didn’t want to put on record that I thought we paid bribes,” she said.
Ms. Ellison also explained why she had agreed to follow Mr. Bankman-Fried’s plans.
Before his companies collapsed, Mr. Bankman-Fried often described himself as a utilitarian — meaning he made decisions designed to serve the common good. He told Ms. Ellison that “rules like ‘don’t lie’ or ‘don’t steal'” didn’t fit that framework, she said.
Over time, she explained, these beliefs began to rub off on her.
“It made me more willing to do things like lie or steal,” she said.
Mr Bankman-Fried’s lawyers will question Ms Ellison when the trial resumes on Thursday.