New York CNN –
After more than nine hours of testimony over two days, Caroline Ellison, the key witness in the government’s case against Sam Bankman-Fried, broke down as she described the final days of the crypto empire she helped build.
Oddly enough, she said that even though it was “overall the worst week of my life,” she told Bankman-Fried at the moment that it was also “the best mood I’ve been in in a year.” Through tears, she told jurors that she felt an “overwhelming sense of relief” because the moment she had been dreading had finally come. She didn’t have to lie anymore, she said, even though she still felt “indescribably bad” about the people “we betrayed.”
The moment she had been dreading was the rapid financial implosion in November of Alameda Research, the crypto hedge fund where she was managing director, and FTX, its sister trading platform run by Bankman-Fried, 31, who owned her According to them, and others are misleading the public and investors about the true nature of the relationship between the two companies.
Earlier in the day, Ellison described how she distributed “dishonest” financial statements to lenders that hid billions of dollars in funds siphoned from FTX customer accounts.
Before FTX collapsed, it owed $12 billion to its customers, but the company — contrary to Bankman-Fried’s assurances on Twitter — only had $4 billion in customer holdings, Ellison said. According to prosecutors, Alameda siphoned off the missing $8 billion to pay off its debts and make loans to Bankman-Fried and others.
Bankman-Fried pleaded not guilty to seven counts of fraud and conspiracy. His defense began briefly cross-examining Ellison on Wednesday before Judge Lewis Kaplan declared: “It’s been a long day” and suggested the court adjourn the hearing half an hour earlier. Defense attorneys will continue to cross-examine Ellison on Thursday.
Ellison, who was with Bankman-Fried for more than two years while working at Alameda, pleaded guilty to seven counts of fraud and conspiracy as part of a cooperation agreement with prosecutors.
Over two days, Ellison presented a version of events in which one person, Bankman-Fried, ordered his inner circle to engage in criminal activity. Although she was CEO of Alameda, Bankman-Fried actively supervised both Alameda and FTX, she testified.
If convicted and given the maximum sentence, Bankman-Fried faces 110 years in prison.
The prosecution’s case hinges on evidence that Bankman-Fried stole billions of dollars in FTX customer funds to cover Alameda’s losses and enrich himself and others. Because the money was withdrawn directly from FTX customer accounts, Bankman-Fried invested in luxury real estate and donated millions of dollars to political campaigns in the United States, according to prosecutors. In setting up a secret facility that allowed Alameda to borrow from FTX, Bankman-Fried and other executives lied to investors and deceived customers who trusted that their money could be withdrawn at any time.
Ellison and other witnesses have testified that Alameda, which engaged in high-risk crypto trading, had a secret and virtually unlimited line of credit with FTX that allowed it to tap funds from unsuspecting customers who deposited funds on the exchange.
Prosecutors’ evidence to date suggests that FTX’s creation in 2019 was driven primarily by Bankman-Fried’s desire for a large source of capital beyond the third-party loans on which Alameda relied.
On Wednesday, Ellison also walked jurors through some of her previous personal to-do lists that she kept in Google Docs, including one titled “Things Sam Freaks Out About,” which she said she updates regularly He was fixated on keeping an eye on Bankman-Fried’s problems.
Jane Rosenberg/Portal
In this courtroom sketch, Assistant U.S. Attorney Danielle Sassoon questions Caroline Ellison as defense attorney Mark Cohen objects in the fraud trial of Sam Bankman-Fried in New York City on October 11, 2023.
Posts under that title included “getting regulators to take action against Binance” – a reference, she said, to what Bankman-Fried saw as “the best potential opportunities to improve FTX’s market share” by allowing customers from the FTX’s biggest competitors were attracted. According to Ellison, this was something he claimed “regulators had been promising for some time, but it never happened.” (Binance, which is currently under intense regulatory scrutiny in the United States, briefly proved to be potential savior for FTX when its business was in free fall in November 2022, but pulled out of the deal after Binance determined that FTX’s problems were “beyond our control or ability to help.”)
Also on the list was “buying SNAP,” which Ellison explained as Bankman-Fried’s plan to acquire Snapchat’s parent company.
The entry, “Raising from MBS,” referred to Bankman-Fried’s efforts to raise capital from Saudi Arabia’s Crown Prince Mohammed bin Salman.
In her afternoon testimony Wednesday, Ellison said Bankman-Fried’s disheveled appearance was a calculated public relations strategy.
“He thought his hair was very valuable,” she said, adding that Bankman-Fried believed he would have received higher bonuses because of his hair when he worked as a trader at Jane Street early in his career.
Amr Alfiky/Portal
Indicted FTX founder Sam Bankman-Fried leaves the United States Courthouse in New York City on July 26, 2023.
She thought he was trying to build the image of an eccentric crypto pioneer.
Bankman-Fried often told journalists that he drove a Toyota Corolla, a detail that might suggest he is a pragmatist unconcerned with the specifics of being a billionaire. But Ellison said the Corolla was part of the media strategy and he only started driving it after handing over his more luxurious company car.
FTX collapsed into bankruptcy in November 2022 after a leaked financial statement revealing Alameda’s unusually close financial ties to FTX caused panic among investors and customers.