Crypto Exchange: “He Instructed Me to Commit Crimes”: Key Witness Makes Serious Accusations Against FTX

Caroline Ellison was a close confidant and ex-girlfriend of FTX boss Sam Bankman-Fried. She has now testified in court with serious allegations against him.

October 11, 2023 | by Astrid Dorner

Caroline Ellison, CEO of Alameda Research © Portal

This is money laundering and fraud worth billions. According to Ellison, he played an important role in this. She was the head of the Alameda hedge fund, which was also co-founded by Bankman-Fried and was reportedly closely linked to FTX. Alameda also became insolvent in November.

Ellison and Bankman-Fried have a complex relationship. They were a couple for a while, but in the end they practically stopped talking to each other, as inside sources report. Now they are blaming each other in court for the crypto industry’s biggest failure and hoping to keep the impending prison sentences as low as possible.

“He instructed me to commit crimes,” Ellison said in court Tuesday. She has already pleaded guilty and is cooperating with prosecutors. According to her accounts, Bankman-Fried allegedly stole client funds shortly after FTX was founded. Some of this helped Alameda cover trading losses and gain access to credit to make even bigger, riskier bets.

Another part would have been paid as loans to FTX managers, the rest was used for political donations and venture capital investments, according to Ellison. In total, up to $14 billion in customer funds were stolen. When both companies went bankrupt in November, they were almost $10 billion short.

The description of the former Alameda boss contrasts sharply with the image Bankman-Fried constructed. The 31-year-old was the biggest star in the sector until shortly before bankruptcy. FTX was the second largest digital currency trading platform in the world. The SBF, as it is known, surrounded itself with sports stars such as Tom Brady and political figures such as former US President Bill Clinton and Tony Blair, former British Prime Minister.

His fortune was estimated at $20 billion and he was one of US President Joe Biden’s biggest donors. Bankman-Fried followed a vegan diet and campaigned for the fight against pandemics and climate protection – including in her own industry. Business partner Anthony Scaramucci of hedge fund Skybridge Capital sought to be close to him, as did well-known venture capitalists and pension funds.

The SBF would have given instructions on falsifying balance sheets

However, according to Ellison, the empire was built on sand from the beginning. Bankman-Fried instructed them to falsify the hedge fund’s financial statements to make them “appear less risky than they were,” Ellison said. The FTT token, in particular, is said to have played an important role. FTT was the internal token of the FTX exchange and could simply be created by Bankman-Fried without being backed by any assets. Alameda then deposited FTT tokens as collateral to obtain loans from other crypto lenders.

Wang described to the twelve-person jury how he programmed advantages for Alameda into FTX’s computer code. Alameda raised up to $65 billion from FTX. FTX customers would not know this. “The money belonged to the clients, and the clients didn’t give us permission to use it for other things,” admitted Wang, who has known Bankman-Fried since school and shared a room with him at the elite MIT university.

FTX’s CEO has repeatedly intentionally misled customers and investors, Wang said, most recently on Nov. 7. At that time, he assured via the short messaging service Twitter that FTX was in good shape and had enough assets to face the bank run, which was unfolding at a record pace at the time. “But FTX was not in good shape and did not have enough assets,” Wang said in court. Four days after the now-deleted tweet, FTX filed for bankruptcy.

Although Ellison and Wang had repeated misgivings about FTX’s practices, they stood by Bankman-Fried to the end and reaped the benefits. Ellison earned an annual salary of about $200,000 at Alameda, which was supplemented by generous bonuses twice a year. The biggest bonus in 2021 was $20 million. They lived with Bankman-Fried and other FTX executives in a $30 million penthouse in the Bahamas, then FTX’s headquarters. The rent was paid by the company, Wang said.

Legal experts see the Public Prosecutor’s Office as having a clear advantage thanks to strong allegations supported by Excel spreadsheets and snippets of FTX’s computer code. “Things are looking bad for Bankman-Fried. The prosecution has a good starting point,” said Randal Eliason, a George Washington University law professor and former prosecutor.

Bankman-Fried’s defense attorney, Mark Cohen, announced in his opening statement that he would at least partially blame Ellison for the disaster. His client “instructed Elliso to reduce risks at Alameda. “But she didn’t comply,” Cohen said last week. He may question her in the coming days.

If the former cryptography prodigy is found guilty on all seven charges, he could face up to 115 years in prison. Legal experts, however, assume the sentence could be 20 to 30 years.

Meanwhile, FTX customers continue to wait for their money. Bankruptcy trustee John Ray has raised more than $7 billion in assets and is in the process of selling the exchange’s crypto holdings. Industry experts hope that customers will be able to see at least some of their money back next year.