Caroline Ellison Testifies Against FTX’s Sam Bankman-Fried

The fraud trial of Sam Bankman-Fried, former CEO of failed crypto exchange FTX, continued this week, with the testimony of a second star witness for the US prosecution.

Caroline Ellison testified in a Manhatten courtroom on Tuesday that she and former boss and boyfriend Bankman-Fried had defrauded customers, investors, lenders.

Last week FTX co-founder Gary Wang had testified against his former colleague, admitting that he and Bankman-Fried had committed financial crimes and lied to the public before the cryptocurrency trading platform collapsed last year.

FTX debt

Gary Wang also testified that a supposed $100 million (£82m) insurance fund intended to prevent loss of FTX user funds in the event of liquidation events, in fact held no money.

Bankman-Fried has already denied charges of fraud, money-laundering and stealing funds from FTX customers for his own use, including making property purchases and political donations.

By the end of 2019 Alameda Research, Bankman-Fried’s crypto trading firm, was already withdrawing more from FTX than FTX took in in customer fees, Wang said.

By June 2022 Wang calculated Alameda’s debt to FTX at about $11bn.

Caroline Ellison testimony

Into this comes the testimony this week of Caroline Ellison, the former head of Sam Bankman-Fried’s crypto hedge fund.

Caroline Ellison was at one time the girlfriend of Sam Bankman-Fried, and according to CNBC, she took more than 30 seconds to identify Bankman-Fried in court after he radically changed his look by replacing his wild hair approach with a neat haircut for the trial.

CNBC reported that Caroline Ellison testified on Tuesday that she and her ex-boss had defrauded customers, investors and lenders.

“Yes, we did,” Ellison reportedly said, when Danielle Sassoon, assistant US attorney, asked if she committed a crime. “I mean Sam and I and others.”

Ellison then reportedly listed her crimes: “fraud, conspiracy to commit fraud and money laundering.”

Ellison, who ran Alameda Research, had pleaded guilty in December to two counts of wire fraud, two counts of conspiracy to commit wire fraud, conspiracy to commit commodities fraud, conspiracy to commit securities fraud and conspiracy to commit money laundering.

As part of her plea deal, she agreed to co-operate with the prosecution’s case against Bankman-Fried.

Misusing funds

During her testimony, Ellison said she had met Bankman-Fried when she was an intern at Jane Street, a proprietary trading firm in New York. They later worked together at Alameda and dated for a couple of years, she said, adding that Bankman-Fried was the original CEO and owner of Alameda.

“Sam directed me to commit these crimes,” she was quoted as saying by CNBC. He “directed us to take customer money to pay loans.”

The US alleges that Bankman-Fried misused the billions of dollars that flowed from customer accounts at FTX to Alameda.

Ellison testified that Alameda took several billion dollars from FTX customers and that Bankman-Fried had not only set up a system to steal the funds, but also directed Ellison and others to use customer funds to repay loans in the ballpark of $10 billion.

“We ultimately took around $14 billion, some of which we were able to pay back,” she was quoted as saying. “I sent balance sheets to lenders at the direction of Sam that incorrectly stated Alameda’s assets and liabilities.”

She reportedly said the numbers were adjusted to make Alameda look less risky as an investment.

In mid-2021, when FTX bought equity in the company back from rival exchange and early investor Binance, it used $1 billion in customer money for the transaction, Ellison testified. That followed an in-person conversation between Ellison, Bankman-Fried and Sam Trabucco, Alameda’s co-CEO, CNBC reported.

“We don’t really have money for this,” Ellison recalled saying. “We’ll have to borrow from FTX to do it.”

Bankman-Fried told her that was OK because it was important and “we have to get it done,” she said.

Another problem Ellison highlighted was the roughly $5 billion in personal loans that Alameda gave to insiders, including a $35 million loan to former top FTX executive Ryan Salame that went to donations for Republican political candidates.

Ellison was quoted by CNBC as saying that she learned of the loans when she was preparing Alameda’s balance sheets.

Ellison said Bankman-Fried also gave a $10 million donation to US President Joe Biden’s presidential campaign.