On the third day of Caroline Ellison’s stunning testimony at Sam Bankman-Fried’s trial on billion-dollar fraud charges, his lawyers cast her as the true leader of Alameda Research to make a case that the fallen FTX founder wasn’t responsible for the companies’ collapse.
Ellison, 28, was CEO of the hedge fund Alameda Research and Bankman-Fried’s sometimes-girlfriend. She’s the prosecution’s star witness at his Manhattan federal court trial. Bankman-Fried, 31, faces seven counts on fraud and conspiracy charges relating to his management of the cryptocurrency exchange FTX. He has pleaded not guilty.
Defense attorney Mark Cohen suggested that Ellison –Bankman-Fried’s on-again, off-again girlfriend – let heartbreak over their spring 2022 breakup impede business communications in a damaging way.
“After you and Mr Bankman-Fried broke up for the last time, did it affect your ability to communicate with him?” Cohen asked.
“Yes,” Ellison said. “I found it difficult to have in-person, one-on-one conversations with him. I tried to avoid those and avoid much time with him in social settings. I continued to have work communications with him over Signal.”
Cohen intimated during his questioning that Ellison’s business decisions might have been impacted by her emotions toward Bankman-Fried, including her resistance to investing in Modulo, another crypto trading firm. Modulo was run by a woman whom Bankman-Fried had also dated, Lily Zhang, previous court testimony revealed, and Duncan Rheingans-Yoo.
“Didn’t part of you want to crush them?” asked Cohen.
“Yeah, I remember having feelings like that at some points,” Ellison said. Alameda still wound up sending more than $450m to Modulo in spring 2022.
Cohen asked about everything from Ellison’s treatment of risk to accounting techniques, at times implying that Bankman-Fried was a savvy businessman who erred in handing her the reins. In response to Cohen’s questions, Ellison revealed that she had considered resigning from Alameda over concerns of its borrowing.
The day before, Ellison had provided a detailed chronology of Alameda’s shaky inner-workings, deeply intertwined with FTX, both of which came crashing down after crypto dipped in May 2022, weighed down by a $10bn deficit.
While CEO, Ellison testified, she worried that Alameda – largely funded by loans – would be dealt a death blow if the lenders decided to collect, and they did. Alameda found itself billions of dollars short. The hedge fund illegally used funds from FTX customers to repay the debts without notifying them, which was done at Bankman-Fried’s direction, according to Ellison.
In her testimony, Ellison went into detail about her and Bankman-Fried’s relationship, describing how the entanglement saddened her and negatively affected her work.
“I often shared feelings about being unhappy with our relationship” in messages sent to Bankman-Fried via Google Docs, she said. When the crypto crash began, the two had broken up, Ellison said, and she had been avoiding speaking to him in spite of running businesses together.
Bankman-Fried blamed her for Alameda’s downfall, Ellison said Wednesday. In August 2022, months after they had split, she and Bankman-Fried were having a business conversation in the study at their sprawling $40m Bahamas penthouse, which they shared with other FTX and hedge fund employees.
“We initially started by talking about Alameda’s balance sheet, and then Sam started saying … that it was a big mistake, and that it was my fault, and that I was largely responsible for the financial situation Alameda found itself in,” Ellison said. She added, however, that she remembered Bankman-Fried controlled the majority of Alameda’s investment decisions.
Weeping on the witness stand, she also described how the deception weighed on her as the months wore on – what happened if people found out that FTX customer funds were propping up the ailing Alameda? What happened if too many FTX customers withdrew their money at once – only to find they couldn’t actually collect?
When FTX and Alameda did collapse in November of 2022, she felt relieved, she said Wednesday.
“I had a lot of mood swings during that week and a lot of different feelings, but one of the feelings I had was an overwhelming feeling of relief,” Ellison testified. “This was kind of something I’d been dreading for so long … and I just, I felt a sense of relief that I didn’t have to lie any more ... that I could take responsibility.”
Ellison has pleaded guilty to wire fraud and conspiracy charges for her role in FTX and Alameda’s collapse. FTX co-founder Gary Wang agreed to a similar plea deal and testified against Bankman-Fried last week.
