Sam Bankman-Fried’s fraud trial is poised to take a dramatic turn Tuesday when government prosecutors call Caroline Ellison – the former CEO of Alameda Research and the FTX founder’s sometime-girlfriend – as their star witness.
Ellison will take the stand after FTX co-founder Gary Wang completes his testimony, prosecutors said on Friday in Manhattan federal court. Although Ellison’s cooperation with prosecutors has long been known, the details of her testimony against her ex-partner could provide the deepest, most damning insight yet into the inner workings of FTX and Alameda, the cryptocurrency exchange’s closely linked hedge fund, where she served dual roles as Bankman-Fried’s business confidant and occasional lover.
Though she has yet to appear, Ellison has already been an integral figure in trial proceedings. The prosecution has hinted that it will use Ellison’s testimony to pull back the veil on FTX and Alameda’s allegedly extensive financial chicanery. For their part, Bankman-Fried’s lawyers seem likely to paint as unflattering a portrait of Ellison as possible, casting her as a scorned woman with little confidence and bad business acumen. Bankman-Fried himself has leaked documents about her to the press, which led to the revocation of his bail and his pre-trial imprisonment.
Federal attorneys have already made arguments that the exchange and the fund were run by immature risk-takers who eschewed basic business practices and duties to clients.
“Before you started working at FTX, what did the defendant tell you about his relationship with Caroline Ellison?” prosecutor Danielle Sassoon asked Adam Yedidia earlier this week, an FTX developer who was in Bankman-Fried’s inner circle.
“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,” Yedidia said.
“What did you say?” she pressed, to which Yedidia replied: “I said no.”
“[Bankman-Fried] said he figured that was reasonable and thought that I would say something like that,” Yedidia elaborated under further questioning.
Even as early as last year, Ellison’s statements in court during plea proceeding set the stage for testimony that would put Bankman-Fried at the center of an alleged fraud that siphoned $10bn from clients. “While I was co-CEO and then CEO, I understood that Alameda had made numerous, large illiquid venture investments and had lent money to Mr Bankman-Fried and other FTX executives,” Ellison said.
Bankman-Fried, who is facing seven counts on fraud and conspiracy charges, has pleaded not guilty.
Shortly after FTX and Alameda collapsed in November 2022, Ellison brokered a plea deal with prosecutors. She pleaded guilty to two counts of wire fraud and a host of financial conspiracy charges the next month. In exchange for cooperating, prosecutors will file a letter asking for Ellison’s sentence to reflect her cooperation – if she fully complies and does not lie.
“I agreed with Mr Bankman-Fried and others to provide materially misleading financial statements to Alameda’s lenders,” she said in November, remarking later: “I am truly sorry for what I did. I knew that it was wrong,”
The judge, Ronnie Abrams, said: “You mentioned that you knew that what you were doing was wrong. Did you also know that it was illegal?”
“Yes,” Ellison said.
Bankman-Fried’s defense appears likely to cast Ellison as the party truly culpable for FTX and Alameda’s collapse, having already derided her business decisions as damaging to both companies. When crypto seemed vulnerable in early 2022, Bankman-Fried asked Ellison to make moves that would insulate Alameda – but she did not, defense attorney Mark Cohen said in his opening.
“As the majority owner of Alameda, he spoke to Ms Ellison, the CEO, and he urged her to put on a hedge, something that would protect against such a downturn. She didn’t do so at the time, and this also becomes an issue later on, when the storm hit,” Cohen said.
“Sam acted in good faith and took reasonable business measures. He reviewed financial documents for both Alameda and FTX and believed they had the assets to weather the storm,” Cohen later said. “Things were tight, much tighter than they had been at the beginning of the year, and tight because earlier in the year Ms Ellison had not put on the hedges for Alameda, which would have offset some of this.”
There is also reason to think Bankman-Fried’s defense will try to undermine Ellison’s reliability by casting her as a jilted lover. After writings from her diary appeared in the New York Times, Judge Lewis Kaplan revoked Bankman-Fried’s bail. Prosecutors claimed Bankman-Fried wanted to “interfere with a fair trial by an impartial jury” and “not only to harass Ellison, but also to deter other potential trial witnesses from testifying”. Kaplan found those allegations had probable cause.
In the journal entries, Ellison voiced concern about her own leadership capabilities, writing: “Running Alameda doesn’t feel like something I’m that comparatively advantaged at or well-suited to do.” She also expressed sadness over her relationship with Bankman-Fried, saying: “I felt pretty hurt/rejected” and that cutting off communication “felt like the only way I could regain a sense of power”.
