A lawyer for Sam Bankman-Fried on Thursday sought to undermine the testimony of Caroline Ellison, the prosecution’s key witness in his fraud trial, as she continued to insist that the former crypto mogul was behind the misuse of billions of dollars in customer funds on his FTX -Exchange.
During about five hours of cross-examination, Mr. Bankman-Fried’s defense attorney, Mark Cohen, questioned Ms. Ellison about her decision to cooperate with prosecutors in return for leniency. He also asked her about a document she had sent to employees at Alameda Research, the crypto trading firm she ran for Mr. Bankman-Fried, that had painted a rosier picture of the company’s finances than she had described privately .
But Mr. Cohen did not trigger any major revelations or inconsistencies from Ms. Ellison, 28, who stood by her earlier statement that she followed Mr. Bankman-Fried’s instructions to let Alameda access FTX customer funds.
“I think they were terrible mistakes,” she said of Mr. Bankman-Fried’s decisions in the summer of 2022 that ultimately led to the collapse of FTX and Alameda Research.
A week into Mr Bankman-Fried’s trial, Ms Ellison has emerged as the strongest witness against him. In just over two days of testimony in federal court in Manhattan, she told a jury that Bankman-Fried, 31, had known for months that Alameda’s finances were in a precarious position and that the company was unlikely to be able to cope would pay back most of the $10 billion it had borrowed from FTX customers.
Ms. Ellison ran Alameda and occasionally met with Mr. Bankman-Fried. After FTX and Alameda failed in November, federal prosecutors accused Mr. Bankman-Fried of funneling billions of dollars in FTX customer deposits to Alameda and then spending the funds on political contributions, real estate purchases and other projects. He became a symbol of hubris and reckless risk-taking throughout the crypto industry.
Ms. Ellison and two other senior FTX executives, Gary Wang and Nishad Singh, later pleaded guilty to fraud and agreed to cooperate with the government.
Ms. Ellison, who took the stand for the third day, gave some of the harshest and most emotional testimony of the trial. On Wednesday, she fought back tears as she described the implosion of Mr. Bankman-Fried’s companies and said part of her was relieved that she would no longer have to lie to hide that Alameda was giving billions of dollars to FTX’s customers debt.
Under questioning from Mr. Cohen, Ms. Ellison admitted that she had sent a misleading document to Alameda employees last year that presented a more positive version of the trading company’s performance than she had discussed with Mr. Bankman-Fried.
“Yes, I would say that the statement about the true condition of Alameda in that document was misleading,” she testified.
But Ms. Ellison said she did so to keep up the morale of Alameda employees at a time when the crypto market was under great stress.
Ms. Ellison also said that after putting her in charge of Alameda in 2021, Mr. Bankman-Fried was not involved in many of the company’s key decisions. When asked by a prosecutor, she said that Mr. Bankman-Fried became more involved in Alameda in the spring of 2022 and that he decided to tap FTX customer funds to repay loans to the trading company’s lenders.
Under questioning by Mr. Cohen, Ms. Ellison also said she had not resigned from Alameda despite her concerns. But when questioned again by a prosecutor, she said she had seriously considered resigning in the months before the companies went bankrupt and that Mr. Bankman-Fried had advised her against it.
“I trusted his opinion and didn’t want to see FTX and Alameda collapse, and if he thought my resignation could lead to that, I didn’t want to do that,” she said.
Mr. Cohen also focused on the events surrounding Ms. Ellison’s decision to plead guilty and cooperate with prosecutors, as well as her concerns about Alameda’s use of FTX customer funds.
Ms. Ellison said FBI agents showed up at her parents’ home last November after FTX and Alameda went under. Ms. Ellison said the agents had a search warrant that allowed them to take computers belonging to her boyfriend, who was staying with her at the time; and her mother, Sara Fisher Ellison, an economist at the Massachusetts Institute of Technology. She did not give her boyfriend’s name but said he worked for Mr. Bankman-Fried’s businesses.
In total, Ms. Ellison said she had about 20 meetings with prosecutors, including one that lasted several hours on Monday, the day before she took the witness stand.
Ms. Ellison also said that despite her concerns about Alameda borrowing billions of dollars in FTX customer funds, she had never discussed it with anyone other than Mr. Bankman-Fried, Mr. Wang and Mr. Singh.
At times this week, Ms. Ellison’s testimony devolved into a war of attrition between Mr. Cohen and prosecutors. The attorneys had several conversations with the judge, which the jury was unable to hear, to discuss the admission of some exhibits.
In an interview on Wednesday, Danielle Sassoon, an assistant U.S. attorney, said she noticed that Mr. Bankman-Fried “laughed, visibly shook his head and scoffed” at various points during Ms. Ellison’s testimony. Ms. Sassoon speculated that it “could have a visible impact on her,” according to a transcript of the trial.
Judge Lewis A. Kaplan, who presided over the trial, said he had not seen what Ms. Sassoon was referring to and therefore would not make any comments to the jury. But the judge told Mr Bankman-Fried’s lawyers to confidentially tell their client that if he made any visible comments he should stop.
Christian Drappi, a former Alameda developer, took the stand after Ms. Ellison finished Thursday afternoon. During his testimony, prosecutors played an audio recording of an “all-hands meeting” in which Ms. Ellison told Alameda employees about the use of FTX customer funds and the company’s impending collapse.
The turn of events left Mr Drappi “completely shocked”, he said.