Tyler Le/Insider
- Caroline Ellison testified in the criminal case against Sam Bankman-Fried.
- The former Alameda Research CEO is expected to be a key witness in the case against Bankman-Fried.
- Ellison was in Bankman-Fried's inner circle and used to date the FTX co-founder.
Caroline Ellison took the witness stand Tuesday to testify in the trial against her ex-boyfriend and former boss Sam Bankman-Fried.
Ellison, the former CEO of the cryptocurrency hedge fund Alameda Research, said in a downtown Manhattan federal courtroom that she conspired with Bankman-Fried and other members of his inner circle to defraud customers and investors of FTX, his cryptocurrency exchange.
"Alameda took several billion dollars from FTX customers and used it to make our own investments and pay off lenders who we owed," Ellison testified.
Ellison pleaded guilty to fraud charges in December and has been cooperating with investigators. Her testimony marks the first time she has spoken publicly since FTX collapsed last year.
Prosecutors allege Bankman-Fried orchestrated a scheme to defraud FTX customers and investors out of billions of dollars. They say Bankman-Fried siphoned money from customer accounts to fund crypto bets with Alameda Research, a hedge fund he controlled. He directed employees to develop programming code that allowed virtually unlimited funds to move from FTX to Alameda quickly and quietly, according to trial testimony.
Ellison testified Tuesday that Bankman-Fried told her to take money from FTX customers.
"He was the one who told us to use customer money to repay our loans," she said.
"We ultimately took $14 billion, some of which we were able to pay back," she added moments later.
Bankman-Fried is facing seven criminal charges, including wire fraud and money laundering, and has pled not guilty on all counts.
Ellison took the stand wearing her signature round-framed glasses and a gray blazer over a simple pink dress. Asked if she recognized Bankman-Fried in the courtroom — packed with journalists and spectators — she looked around the room for nearly a minute before saying she spotted him at the defense table.
Since the exchange collapsed, the former FTX CEO has attempted to put the blame for the platform's collapse on other executives, including Ellison.
During opening statements earlier this month, his lawyer Mark Cohen pointed out that Ellison — and not Bankman-Fried — was the CEO of Alameda Research at the time the two companies fell apart.
"He relied on her and he trusted her to act as the CEO and manage the day-to-day of trading management, preparing financial documents, handling lender relationships, and he stayed involved as owners do," Cohen said.
The companies may have stayed solvent, Cohen suggested, if only Ellison had followed Bankman-Fried's investment strategies as crypto prices became increasingly unstable in 2022.
"He spoke to Ms. Ellison, the CEO, and he urged her to put on a hedge, something that would protect against such a downturn," Cohen said. "She didn't do so at the time, and this also becomes an issue later on, when the storm hit."
At Bankman-Fried's direction, she sent balance sheets to Alameda investors that played down the commingled finances between the crypto hedge fund and FTX to make Alameda appear more stable, Ellison said.
BRYAN R. SMITH
The trial has already delved into Ellison's and Bankman-Fried's tortured relationship
Witnesses so far in the trial have sketched how Ellison, who previously worked alongside Bankman-Fried at the trading firm Jane Street, rose to the leadership of Alameda. There, she made apparently disastrous trades.
According to Gary Wang — the FTX co-founder who testified earlier in the trial — Bankman-Fried justified taking customer funds by saying that things would balance out so long as FTX's trading revenue exceeded whatever amount Alameda took.
In 2022, according to Wang, FTX's revenue was $1.2 billion. But by September 2022 — shortly before the collapse — Alameda Research had taken $14 billion from FTX customers without their permission, Wang testified.
Wang and Adam Yedidia, an FTX developer, have testified about how Ellison worked with other members of Bankman-Fried's inner circle to account for just how much money was taken from customers and figure out how to deal with mounting losses. When Bankman-Fried proposed shutting down Alameda, Wang noted that there would be no way to repay everyone and "could not shut down as a result."
"It did not have $14 billion in assets that it could sell off to repay it," Wang testified.
Chelsea Jia Feng
Other portions of trial testimony have veered into personal territory.
In the Bahamas, where FTX and Alameda Research were based, several top employees and their significant others — including Bankman-Fried, Ellison, and Yedidia — all lived in a $35 million luxury penthouse together.
Yedidia recalled an uncomfortable moment where Bankman-Fried approached him for relationship advice.
"Sometime in early 2019, the defendant told me that he and Caroline had had sex and asked if it was a good idea for them to date," he said.
"I said no," Yedidia continued.
Bankman-Fried didn't seem offended, according to Yedidia.
"He said he figured that was reasonable and thought that I would say something like that," Yedidia said.
Eric Chaffee, a law professor at Case Western Reserve University, told Insider that Ellison's testimony will likely be one of the most damaging to Bankman-Fried's case due to her close relationship with the FTX cofounder, who was her on-and-off boyfriend.
Bankman-Fried's tortured relationship with Ellison has caused him trouble ahead of the trial.
The FTX co-founder leaked entries from Ellison's private diary to The New York Times in July. At the time, the US Department of Justice accused the defendant of attempting to taint the jury pool. In response, Bankman-Fried's attorneys told the judge the leaked documents were not an attempt to discredit Ellison as a witness, but rather an effort for Bankman-Fried to "give his side of the story."
The leaked diary entries included details about Ellison's romantic relationship with Bankman-Fried, as well as admissions from the former Alameda Research CEO that she felt unqualified to lead the company. US District Judge Lewis Kaplan, who's overseeing the case in a downtown Manhattan courtroom, ruled that the journal leaks were a form of witness tampering and ordered Bankman-Fried to be jailed ahead of the trial.
Last week, even more details about Ellison's on-and-off romantic relationship with the FTX co-founder were revealed in a new biography on Bankman-Fried that hit the shelves on October 3. Author Michael Lewis wrote that Ellison was "terrified" of Bankman-Fried when she first met him and the FTX cofounder made her a pros and cons list for entering into a sexual relationship with him.
The trial is expected to last around six weeks. If convicted, Bankman-Fried could face a hefty prison sentence.