Unlock Editor’s Digest for free
Roula Khalaf, editor of the FT, picks her favorite stories in this weekly newsletter.
Caroline Ellison, the star witness in Sam Bankman-Fried’s trial, said the FTX founder directed her and her ex-colleagues to steal around $10 billion in customer deposits from the exchange to fund risky investments and repay loans .
The damning testimony from Ellison, the former head of Bankman Fried trading firm Alameda Research and his former girlfriend, is expected to be a pillar of the government’s criminal case against the former cryptocurrency tycoon.
Ellison took the witness stand shortly after 12:30 p.m. local time in Manhattan, wearing a gray jacket over a red dress. When asked by prosecutors, she calmly identified Bankman-Fried and called him “Sam” in her answers.
“He directed me to commit crimes,” Ellison told the jury. “He was the one who instructed us to take customer funds and repay our loans.” She previously pleaded guilty to fraud and agreed to cooperate with prosecutors.
FTX collapsed in November after revelations that Alameda had secretly siphoned billions of dollars in customer deposits from the exchange.
“Alameda has made billions of dollars. . . from FTX customers,” Ellison said. She admitted to sending “balance sheets to…” [Alameda] Lender on instructions from Sam. . . This made Alameda’s balance sheet look less risky than it was.”
Ellison is the most anticipated witness in the trial and a key figure in the collapse of FTX. She said she “didn’t feel good about” loan agreements that made the trading company “riskier,” but testified that she always deferred to Bankman-Fried when making important decisions.
“The entire time we were together, he was also my boss at work, which led to some awkward situations,” Ellison said.
She added that the relationship ended after she made it clear she wanted “more” from Bankman-Fried, who was “distant” from her.
Ellison also testified that she was never allocated shares 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 asked her to model what would happen to Alameda in a “tenth percentile scenario,” in which crypto markets plunged by 50 percent and the exchange was rocked by bad publicity.
She said Bankman-Fried ordered the market war because he was thinking about making another $3 billion in venture capital investments — and he ended up doing that, making Alameda’s position even riskier. With the additional investments, Ellison predicted that Alameda would be “much less likely or almost impossible” 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 she created to analyze the scenario, which she said she discussed with Bankman-Fried. She said her model assumed that “Alameda would use FTX customer funds” to help repay its loans.
The episode foreshadowed the events that ultimately brought FTX to its demise a year later, refuting Bankman-Fried’s claim that he was unaware of the details of the risks Alameda was taking.
Bankman-Fried met Ellison when they worked at trading firm Jane Street and later recruited her in 2018 as one of the first traders at Alameda Research.
She was named co-chief executive alongside fellow trader Sam Trabucco in 2021 when Bankman-Fried relinquished the title to focus on FTX and 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 placed much of the blame for FTX’s failure on Ellison, claiming that he was unaware of the extent of Alameda’s financial distress and the extent of its borrowing from FTX until shortly before the collapse of both companies.
Recommended
Bankman-Fried’s bail was revoked and he was sent to prison over the summer after the government alleged he leaked Ellison’s private writings to New York Times journalists to intimidate them – 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 make very high returns in terms of influence,” adding that the defendant contributed $10 million to Joe Biden’s presidential campaign.
Bankman-Fried told her there was a “5 percent chance he would be president one day,” Ellison said. When prosecutors asked what she meant by “president,” Ellison replied: “of the United States.”