Caroline Ellison, a prime adviser to the cryptocurrency mogul Sam Bankman-Fried, testified on Wednesday that she had lied time and again at his request, deceptive the general public about his companies and circulating “dishonest” monetary paperwork to crypto lenders.
By the point Mr. Bankman-Fried’s two firms — FTX, a digital forex alternate, and Alameda Research, a hedge fund — collapsed in November, the lies had turn out to be an excessive amount of to bear, Ms. Ellison mentioned, and the implosions had been nearly cathartic.
“General it was the worst week of my life,” mentioned Ms. Ellison, 28, combating again tears as she recounted the frantic week when the companies failed. “I felt this sense of aid that I didn’t must lie anymore, and that I might begin taking duty though I felt indescribably unhealthy.”
Ms. Ellison’s testimony, in her second day on the witness stand, was essentially the most emotional second thus far of Mr. Bankman-Fried’s fraud trial. She was broadly thought-about the federal government’s star witness, partly as a result of she dated Mr. Bankman-Fried on and off for years, giving her distinctive entry to the FTX founder as his crypto empire grew. His trial in federal courtroom in Manhattan has turn out to be a referendum on high-risk practices throughout the crypto trade that led to billions of {dollars} in losses final 12 months.
Within the courtroom, Mr. Bankman-Fried, 31, didn’t visibly react to Ms. Ellison’s testimony. Throughout a break in proceedings, he glanced at a bunch of reporters sitting within the gallery and raised his eyebrows.
Mr. Bankman-Fried has been charged with orchestrating a scheme to show FTX into his private piggy financial institution. The authorities contend that he stole as a lot as $10 billion from FTX clients to finance enterprise capital investments, purchase luxurious actual property, make marketing campaign donations and repay lenders to Alameda.
Ms. Ellison, who was Alameda’s chief government, has mentioned she served as one in all Mr. Bankman-Fried’s foremost accomplices by channeling FTX buyer funds into Alameda’s coffers. In December, she pleaded responsible to fraud and conspiracy and agreed to cooperate with prosecutors in return for leniency. Gary Wang and Nishad Singh, two prime FTX executives, additionally pleaded guilty and are cooperating with the federal government.
Mr. Bankman-Fried has pleaded not responsible to seven legal counts, together with a cost of defrauding lenders. He might face what would quantity to a life sentence in jail if he’s convicted.
Since FTX collapsed, Ms. Ellison has confronted far better public scrutiny than both of the opposite cooperating witnesses. She and Mr. Bankman-Fried lived collectively within the Bahamas, the place FTX was based mostly, and shared a turbulent workplace romance as FTX grew right into a $32 billion crypto behemoth. On Tuesday, Ms. Ellison recounted intimate particulars of the connection, together with the tensions it brought on at work and her personal anxieties about Mr. Bankman-Fried’s emotions towards her.
When she returned to the stand on Wednesday, Ms. Ellison walked by the historical past of FTX’s monetary issues. She advised jurors that the alternate started falling aside in spring 2022 when the crypto market crashed.
Ms. Ellison mentioned she had stored detailed spreadsheets that confirmed simply how a lot Alameda owed its lenders and the way a lot it was counting on buyer deposits from FTX to pay down these loans within the worst-case state of affairs. She mentioned she had shared her evaluation with Mr. Bankman-Fried.
The worst case occurred in June 2022 when Alameda’s lenders started asking for a reimbursement. Alameda’s personal crypto belongings had plunged in worth throughout the market downturn, which means the agency had little option to make its lenders entire.
“I used to be in type of a relentless state of dread at that time,” Ms. Ellison testified. At instances, her testimony turned emotional, and a courtroom official handed her a tissue as she tried to stifle sobs. She mentioned she had been involved that if the general public came upon that Alameda had been taking FTX buyer funds, “the whole lot would come crashing down.”
Even after she laid out the dangers, she mentioned, Mr. Bankman-Fried directed her to make use of extra buyer deposits to repay the lenders. Ms. Ellison mentioned she had adopted his directions though “I knew it was mistaken.”
To cover Alameda’s fragile monetary state, Ms. Ellison mentioned, Mr. Bankman-Fried advised her to provide one of many agency’s greatest lenders — a crypto firm referred to as Genesis — a deceptive stability sheet in summer season 2022 that hid that Alameda had borrowed some $10 billion in FTX buyer cash.
“I didn’t wish to be dishonest, however I additionally didn’t need them to know the reality,” she mentioned. She testified that she had despatched related “dishonest” stability sheets to different lenders earlier than FTX’s collapse.
She broke up with Mr. Bankman-Fried in the midst of 2022, and their work relationship additionally frayed. Throughout a heated dialog with him in August 2022, she broke down and cried when he blamed her for Alameda’s monetary troubles, she testified. He accused her of not taking sufficient measures earlier within the 12 months to scale back Alameda’s buying and selling dangers within the crypto market.
“He was talking loudly and strongly,” she mentioned. “I bought very upset, began crying, and I had hassle persevering with the dialog.”
Ms. Ellison additionally testified about giant funds that Alameda made in 2021 to unfreeze $1 billion it had stored in buying and selling accounts at two Chinese language exchanges. In March, prosecutors charged Mr. Bankman-Fried with paying tens of thousands and thousands in bribes to the Chinese language authorities to regain entry to these accounts.
Prosecutors later determined to pursue the overseas bribery cost at a separate trial scheduled for subsequent 12 months. However the decide overseeing the case, Lewis. A. Kaplan, allowed Ms. Ellison to debate a few of FTX’s efforts to unfreeze the cash, whereas reminding the jury that Mr. Bankman-Fried will not be dealing with a bribery cost at this trial.
Ms. Ellison mentioned one failed try to unfreeze the cash had concerned buying and selling accounts arrange within the names of “Thai prostitutes.” After Alameda’s cash was unfrozen, she mentioned, she was cautious about how she described the funds on inside paperwork.
“I didn’t wish to put in writing that we had paid what I believed had been bribes,” she mentioned.
Ms. Ellison additionally defined why she had been prepared to associate with Mr. Bankman-Fried’s schemes.
Earlier than his firms collapsed, Mr. Bankman-Fried usually described himself as a utilitarian — which means that he made choices designed to advance the better good. He advised Ms. Ellison that “guidelines like ‘don’t lie’ or ‘don’t steal’” didn’t match into that framework, she mentioned.
Over time, she defined, these beliefs began rubbing off on her.
“It made me extra prepared to do issues like lie or steal,” she mentioned.
Mr. Bankman-Fried’s attorneys will query Ms. Ellison when the trial resumes on Thursday.
