Caroline Ellison, the former head of Sam Bankman-Fried’s crypto hedge fund and the government’s star witness in the criminal fraud case against the FTX founder, testified Tuesday that she and her ex-boss defrauded customers, investors and lenders.
“Yes, we did,” Ellison said, when Danielle Sassoon, assistant U.S. attorney, asked if she committed a crime. “I mean Sam and I and others.”
From a courthouse in downtown Manhattan, Ellison then listed her crimes: “fraud, conspiracy to commit fraud and money laundering.”
Ellison, who ran Alameda Research, 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. Part of the 28-year-old’s plea deal with the government has involved cooperating with the prosecution’s case against Bankman-Fried.
Ellison’s testimony started at 12:37 p.m. and lasted less than 10 minutes before the court broke for lunch. It resumed a little after 2 p.m. and ran for two separate hourlong blocks in the afternoon. Prosecutors said Ellison will likely be on the stand for most of Wednesday as well.
Donning a maroon dress with a loose gray blazer and glasses, Ellison provided a brief background of how she got to know Bankman-Fried. They met 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 her boss that whole time.
Ellison was one of Bankman-Fried’s earliest recruits to Alameda in 2017. Bankman-Fried had reportedly convinced the Stanford graduate to ditch her job at Jane Capital to join Alameda as a trader when the hedge fund was still in its original office in the San Francisco Bay area.
Caroline Ellison, former CEO of Alameda Research, center, arrives at court in New York on Oct. 10, 2023.
Yuki Iwamura | Bloomberg | Getty Images
When asked by Sassoon to identify the defendant, Ellison stood up and, for almost 30 seconds, looked around the room. She turned her head all the way to the left to the jury box and back to the right again multiple times before finally identifying Bankman-Fried as sitting “over there and wearing a suit.” The two hadn’t made eye contact when Ellison walked by earlier. Bankman-Fried, who was known for his floppy hair and beach shorts, got a fresh haircut prior to the trial, reportedly from a fellow inmate at the jail in Brooklyn where he’s been held since August.
Ellison said Bankman-Fried was the original CEO and owner of Alameda.
“Sam directed me to commit these crimes,” she said. He “directed us to take customer money to pay loans.”
Bankman-Fried, 31, faces seven federal charges, including wire fraud, securities fraud and money laundering, all tied to the collapse of FTX and Alameda late last year. If convicted in the trial that began a week ago, Bankman-Fried could spend his life in prison. He has pleaded not guilty.
‘We don’t really have money for this’
Central to the case against Bankman-Fried is the billions of dollars that flowed from customer accounts at FTX to Alameda, which had a massive hole in its balance sheet after the crypto markets turned in 2022.
Ellison said 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 said. “I sent balance sheets to lenders at the direction of Sam that incorrectly stated Alameda’s assets and liabilities.”
She said the numbers were adjusted to make Alameda look less risky as an investment.
Following lunch recess, Ellison was asked about her relationship with Bankman-Fried. She said they began dating in the summer of 2021 though they had been sleeping together from time to time before that. The relationship was on-again, off-again until the spring of 2022, when they broke up for good.
Ellison said she quickly discovered after being hired that Alameda was in much worse shape than she’d anticipated. The firm had suffered large losses, lenders had pulled out and more than half the staff had quit.
Regarding the comingling of funds, Ellison said Bankman-Fried was still CEO of Alameda when the practice of funneling money from FTX to the hedge fund began. Ellison said she was under the impression that it was FTX customer money because the sums exceeded the exchange’s profits and the amount of capital it hard raised.
Ellison said that 2020 is the earliest she could remember FTX customer funds being moved into Alameda’s bank account. She said the total amount transferred was $10 billion to $20 billion. Some of that was used on expenses as well as to repay loans and on investments. About $8 billion was for Alameda trading and other purposes, she said.
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 at FTX’s Hong Kong office.
U.S. District Judge Lewis Kaplan presides over the fraud trial of Sam Bankman-Fried over the collapse of FTX, the bankrupt cryptocurrency exchange, at Federal Court in New York City, U.S., October 3, 2023 in this courtroom sketch.
Jane Rosenberg | Reuters
“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.
Enter the FTT token. Bankman-Fried created the digital coin and Alameda initially owned 60% to 70% of the supply, having paid nothing for it. In the heyday of crypto, projects commonly created their own currencies, which often traded on various exchanges in a fashion similar to stocks.
When the FTT token was offered in a seed round, the price was 10 cents. By the time it went public on exchanges in 2019, the price was $1. FTT eventually traded at around $50 a token, lifting Alameda’s stake to billions of dollars.
Ellison said she was instructed to put FTT coins on Alameda’s balance sheet in order to get more loans from companies like Genesis. Ellison testified that she thought the move was misleading, though she said Bankman-Fried reassured her that it would be a separate line item and it was OK.
Other crypto coins were also added to Alameda’s balance sheet and were internally called “Sam coins.” Solana and Serum were examples.
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 exec Ryan Salame that went to donations for Republican political candidates. Ellison said she learned of the loans when she was preparing Alameda’s balance sheets.
Ellison testified that she was concerned about the loans because they were going to really “illiquid things like early-stage companies.” Because of the structure of the loans, they could be called at anytime, creating the risk that Alameda would be pushed into bankruptcy.
“Sam directed us to borrow as much money as we could at whatever terms we could,” she testified.
Ellison said her analysis showed that Alameda had $9.4 billion in loans from third-party lenders, and $8 billion in liquid assets. Subtracting “Sam’s coins,” the net asset value was negative $2.7 billion.
Bankman-Fried gained attention for his hefty political donations, which he said were “very effective,” with “very high returns in terms of influence by spending relatively small amounts,” according to Ellison. She gave the example of a $10 million donation from Bankman-Fried to Joe Biden’s presidential campaign.
Ellison testified that her base salary was $200,000, with two bonuses a year, ranging from $100,000 to $20 million. She also received compensation in FTX equity, equal to about 0.5% of the company.
After exiting the courtroom, Ellison walked outside and got into the wrong SUV. She had to walk across the street to get into another vehicle. Ellison was asked by a reporter outside why she didn’t recognize Bankman-Fried. Another media member asked why she was paid less than men. She ignored both questions.
— CNBC’s Dawn Giel and Dan Mangan contributed to this report
WATCH: Caroline Ellison testifies Sam Bankman-Fried directed her to commit crimes