Sam Bankman-Fried, the star witness in the trial, provides an insider’s account of the indicted company

New York
CNN
—

After nine hours of testimony over two days, Caroline Ellison, a 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.

Strangely, though it was “overall the worst week of my life,” she told Bankman-Fried, “the best mood I’ve been in in a year.” Through tears, she told jurors she was “overwhelmed with relief” because the moment she had been dreading had finally arrived. She didn’t have to lie yet, she said, though she still felt “indescribably bad” about the people “we betrayed.”

The moment she feared was the rapid financial implosion in November of Alameda Research, the crypto hedge fund she was chief executive of, and its sister trading platform FTX, run by the 31-year-old Bankman-Fried. Others mislead the public and investors about the true nature of the relationship between the two companies.

Earlier in the day, Ellison described how FTX hid billions of dollars in funds taken from customer accounts and distributed “dishonest” balance sheets to creditors.

Before FTX collapsed, it owed $12 billion to its customers, but the company — contrary to Bankman-Fried’s assurances on Twitter — had only $4 billion in customer holdings, Ellison said. According to prosecutors, the missing $8 billion was used by Alameda to pay off its debts and make loans to Banker-Fried and others.

Bankman-Fried pleaded not guilty to seven counts of fraud and conspiracy. His side briefly began cross-examining Ellison on Wednesday before Judge Lewis Kaplan declared, “This is a long day,” and suggested adjourning court a half-hour earlier. Defense attorneys will cross-examine Ellison on Thursday.

Bankman-Fried while working in Alameda and Ellison, who dated for more than two years, 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 man, Bankman-Fried, ordered his inner circle to engage in criminal activity. Although she was Alameda’s CEO, Bankman-Fried actively supervised both it and FTX, she testified.

Bankman-Fried could face up to 110 years in prison if convicted and given the maximum sentence.

The prosecution case has evidence to that effect Bankman-Fried stole billions of dollars in FTX client funds To compensate for Alameda’s losses and to enrich himself and others. Prosecutors say Bankman-Fried splurged on luxury real estate and donated millions of dollars to U.S. political campaigns with money taken directly from FTX client accounts. 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 believed they could get their money back at any time.

Ellison and other witnesses testified that Alameda, which engaged in high-risk crypto trading, obtained secret and unlimited credit with FTX, which allowed it to tap money belonging to unwitting customers who had deposited money into the exchange.

Prosecutors’ evidence so far suggests that FTX’s creation in 2019 was primarily driven by Bankman-Fried’s desire for a larger pool of capital beyond the third-party loans Alameda relied on.

On Wednesday, Ellison walked jurors through some of the personal to-do lists she kept on Google Docs, including one titled “Things Sam Is Freaking Out,” where Bankman-Fried said she regularly updates tabs on issues. determined.

Among the entries under that heading was “Getting Regulators to Crack Finances” — a reference to what Bankman-Fried believed were “best ways to improve FTX market share” by luring customers away from FTX’s biggest competitor. This, according to Ellison, “is what regulators have been promising for a while, but it hasn’t happened,” he said. (Binance, currently under intense regulatory scrutiny in the United States, briefly emerged as a potential rescuer of FTX when its business collapsed in November 2022, but pulled out of the deal after Binance determined that FTX’s problems were “beyond our control or ability to help.”)

The list also includes “buying SNAP,” which Ellison described as Bankman-Fried’s plan to acquire Snapchat’s parent company.

“Raising from MBS” chronicles Bankman-Fried’s efforts to raise capital from Saudi Arabia’s Crown Prince Mohammed bin Salman.

In her testimony Wednesday afternoon, Ellison said Bankman-Fried’s disheveled appearance was a calculated PR ploy.

“He thought his hair was more valuable,” she said, adding that Bankman-Fried believed he would receive a higher bonus, returning to his early career as a trader on Jane Street, “because of his hair.”

She thought he was trying to cultivate an image as an eccentric crypto pioneer.

Bankman-Fried often told reporters that he drove a Toyota Corolla, indicating that he was a pragmatist unconcerned with the trappings of being a billionaire. But Ellison said the Corolla was part of a media strategy, and he only started driving it after turning in his very fancy company-provided car.

FTX collapsed into bankruptcy In November 2022, a leaked balance sheet that revealed Alameda’s unusually close financial ties to FTX sparked panic among investors and clients.