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Caroline Ellison, the star witness at the trial against Sam Bankman-Fried, said the FTX founder directed her and her former colleagues to use about $10bn of customer deposits from cash transfers to fund risky investments and pay off loans.
The damning testimony of Ellison, the former head of Bankman-Fried’s trading firm Alameda Research and his one-time girlfriend, forms a pillar of the government’s criminal case against the former cryptocurrency magnate.
Ellison, wearing a gray jacket over a red dress, arrived shortly after 12.30pm local time in Manhattan. When prompted by prosecutors, she quietly identified Bankman-Fried, referring to him as “Sam” in her answers.
“He directed me to commit the crimes,” Ellison told the jury. “He was the one who directed us to take the client’s money and pay off our debt.” He previously pleaded guilty to fraud and agreed to cooperate with prosecutors.
FTX collapsed in November after it was revealed that Alameda had secretly transferred billions of dollars in customer deposits.
“Alameda took billions of dollars . . . from FTX customers,” Ellison said. “She admitted sending the balance sheets [Alameda] Lenders in the direction of Sam. . . It made Alameda’s balance sheet seem less precarious than it should have been.
Ellison is a highly anticipated witness in the trial and a key figure in FTX’s downfall. He said he “didn’t feel good” about the credit arrangements that made the trading company “risky,” but testified that he always deferred to Bankmann-Fried on big decisions.
“The whole time we were dating, he was also my boss at work, which made for 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 he was never offered any stock in Alameda, despite asking Bankman-Fried that “it’s very complicated.”
The 28-year-old, who will return for further questioning on Wednesday, revealed he had asked Alameda to model what would happen in a “tenth of a percent scenario” in which Bankman-Fried crypto markets fell 50 percent a year before the FTX collapse. And the exchange was rocked by bad publicity.
He said Bankman-Fried ordered a market war game as he looked to make another $3bn of venture capital investments – and he eventually did, making Alameda’s position even more precarious. With additional investments, Ellison predicted that Alameda would be “very unlikely or almost impossible” to repay its outstanding debts in a recession scenario.
“In trading, one-tenth of a percent of scenarios happen every day,” Ellison said. He ran the jury through notes sent to him by Bankman-Fried and a spreadsheet he created to analyze the scene, which he said he discussed with Bankman-Fried. He said his model would “use Alameda FTX customer funds” to help pay off his loans.
The episode foreshadowed the events that sank the FTX a year later, undermining Bankman-Fried’s claim that she did not know the details of the dangers of running Alameda.
Banker-Fried met Ellison while working at trading firm Jane Street, and later hired him as one of the first traders at Alameda Research in 2018.
He was named co-chief executive alongside fellow trader Sam Trabucco in 2021, relinquishing the title to focus on Bankman-Fried FTX and avoid questions about conflicts of interest between the two groups. Ellison took over for Alameda when Trabucco left last year.
Bankman-Fried has implicitly laid the blame for FTX’s failure at Ellison’s feet, saying he was unaware of the depth of Alameda’s financial crisis and the extent of its borrowing from FTX until shortly before both companies collapsed.
Bankman-Fried’s bail was revoked and she was sent to prison over the summer after the government accused her of blackmailing Ellison’s personal writings to The New York Times journalists — a charge she denies.
When it came to his political donations, Allison Bankman-Fried testified that “I thought it was very effective . . . he could get very high returns in terms of influence”, and that the defendant had contributed $10mn to Joe Biden’s presidential campaign.
Bankman-Fried told her there was “a 5 percent chance he’ll be president one day,” Ellison said. Asked by lawyers what the president meant, Ellison said: “America’s.”
