SBF Trial Week 2: FTX Star Witness Caroline Ellison: SBF Led Her to Commit Fraud

• Star witness Caroline Ellison, former CEO of Alameda Research and SBF’s ex-girlfriend, testified that SBF influenced her to engage in fraudulent activities during her time at Alameda, even after he stepped down as CEO.
• Ellison’s testimony revealed that SBF directed the use of FTX customer funds, with a significant portion allocated to loans for Bankman-Fried’s associates, which were used for investments and political contributions. 
• Ellison also shed light on the inclusion of FTX’s exchange token, FTT, on Alameda’s balance sheet, highlighting its role in raising concerns about the business. She mentioned SBF’s directive to acquire more FTT to secure loans, even though this inclusion on the balance sheet could be perceived as potentially misleading.

The star witness in the trial against former FTX CEO Sam Bankman-Fried (SBF), Caroline Ellison, former CEO of Alameda Research and SBF’s ex-girlfriend, finally took the stand. According to her, Bankman-Fried has influenced her into committing fraud. 

Read the SBF Trial Updates:

• Week 1: This Week: Former FTX CEO Sam Bankman-Fried’s Criminal Trial Starts
• Week 2: FTX Star Witness Caroline Ellison: SBF Led Her to Commit Fraud

Ellison’s Testimony

Ellison stated under oath that she engaged in fraudulent activities in Alameda at the direction of Bankman-Fried. And although Bankman-Fried had stepped down as Alameda’s chief executive to create a separation from the hedge fund while overseeing FTX, Ellison emphasized that she continued to report directly to him and carried out his directives.

“I sent balance sheets at the direction of Sam that made Alameda’s balances look less risky to investors.”

Caroline Ellison, Former CEO, Alameda Research

As per a report from CoinDesk, Ellison testified regarding Alameda’s use of FTX customers’ funds, revealing that Bankman-Fried instructed her to utilize FTX funds while ensuring that money remained on FTX to meet customer withdrawal requests. A significant portion of these funds was directed towards loans to Bankman-Fried’s close associates, ultimately earmarked for investments and political contributions. 

Ellison indicated that Bankman-Fried found the political donation approach effective in terms of gaining political influence at a reasonable cost, although she expressed discomfort about the loans made to insiders. 

Moreover, Ellison’s testimony revealed that Bankman-Fried denied her equity in Alameda, but she had a small stake in FTX. Alameda had an extensive line of credit at FTX, which Bankman-Fried established.

Furthermore, she mentioned the complexity of her romantic relationship with Bankman-Fried, acknowledging that it created awkward situations.

Clarification about the FTT Token and FTX Loans

Consequently, Ellison’s testimony shed light on the inclusion of FTX’s exchange token, FTT, on Alameda’s balance sheet, which was reported by CoinDesk in November and played a role in revealing issues within Bankman-Fried’s business. 

“Sam was directing us to borrow as much money as possible… This is something he talked about a lot.”

Caroline Ellison, Former CEO, Alameda Research

According to her, Bankman-Fried wanted to acquire more FTT to avoid risking the loans, although this inclusion of FTT tokens on the balance sheet could be seen as potentially misleading. Alameda used FTT as collateral when borrowing billions of dollars from lenders like Genesis, with concerns that these lenders might stop accepting FTT as collateral.

“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 anymore … that I could take responsibility.”

Caroline Ellison, Former CEO, Alameda Research

Before the trial, in late 2022, Ellison admitted guilt in federal fraud cases and was potentially facing a 110-year prison sentence. However, she opted to cooperate with federal authorities, as indicated in her plea agreement. She has been cooperating with the government since her guilty plea.

Gary Wang, who admitted creating much of the programming enabling FTX’s fraudulent activities, also mentioned signing promissory notes for loans worth tens of millions of dollars from Alameda, with $35 million allocated for a company Bankman-Fried sought to invest in. Along with Ellison, Wang, FTX co-founder, also pleaded guilty to charges tied to FTX’s collapse.

SBF Trial

Sam Bankman-Fried (SBF), the former CEO of FTX, trial for fraud and conspiracy charges started earlier this month after almost a year after he was extradited back to the United States. 

He is facing seven federal charges, including wire fraud, securities fraud, and money laundering, in relation to his oversight of the now-defunct FTX and Alameda Research, both of which filed for bankruptcy last year.

Prosecutors accuse him of operating a fraudulent structure built on deception, using customer funds for personal gain. SBF has pleaded not guilty, with his defense arguing that he did not intend to embezzle funds but was overwhelmed by the rapid growth of his businesses. 

The 12 jurors selected for the trial have diverse backgrounds but may face challenges in understanding the technical and financial aspects of the case.

This article is published on BitPinas: FTX Star Witness Caroline Ellison: SBF Led Her to Commit Fraud

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