When Sam Bankman-Frieds protection lawyer Mark Cohen delivered his opening arguments on the FTX founders fraud trial on Oct. 3, he tried to redirect the blame for the disappearance of over $8 billion in buyer funds away from his consumer and towards Caroline Ellison. When she took the stand per week later, Ellison, who was the CEO of Bankman-Frieds hedge fund, Alameda Analysis, and his on-and-off girlfriend, laid the blame squarely on him.
Bankman-Frieds attorneys have steered that FTX and Alameda combusted partially as a consequence of Ellisons management failures and her refusal to mitigate threat, regardless of warnings from Bankman-Fried. He relied on her and he trusted her, Cohen mentioned. Ellisons buying and selling errors, Cohen claimed, grew to become a difficulty afterward, when the storm hit.
Ellison, the prosecutions star witness, responded forcefully on the stand, alleging that it was the opposite manner round: that she was the one to warning Bankman-Fried about his dangerous monetary practices, however that he ignored her recommendation and as a substitute spent $3 billion extra of Alamedas cash, rising their reliance on buyer funds.
Ellison has pleaded responsible to fraud and conspiracy, and is extensively thought-about to be the star witness for the prosecution. He directed me to commit these crimes, she mentioned whereas on the stand, going through Bankman-Fried. Her testimony, mixed with proof introduced by the prosecution, contradictsBankman-Frieds protection argument: that he borrowed his buyer funds in good religion and was undone by forces outdoors of his management, like Ellisons alleged incompetence.
Ellison and Bankman-Fried met after they have been merchants on the buying and selling agency Jane Avenue Capital. Later, in March 2018, Bankman-Fried employed Ellison to commerce cryptocurrencies for Alameda Analysis, the buying and selling agency he had co-founded in 2017. She mentioned in courtroom that the pair began sleeping collectively, a number of months later. This kicked off a tumultuous on-and-off relationship that Bankman-Fried most well-liked to maintain secret, Ellison mentioned. In October 2021, a month earlier than Ellison says they obtained again collectively once more, Bankman-Fried appointed Ellison as co-CEO of Alameda Analysis.
I felt prefer it was a giant job, and I wasn’t very skilled, Ellison says of the place. I’d all the time in the end defer to Sam if he thought that we must always do one thing.
The pair in the end ended up residing collectively in a penthouse apartmentalong with many different FTX colleaguesin the Bahamas, the place the crypto trade was headquartered.
Alameda Analysis and the FTX cryptocurrency trade, which was based in 2019, have been purported to be distinct entities. However Ellison says that Alameda used FTX as a piggy financial institution from the crypto exchanges inception, at Bankman-Frieds course. He mentioned that FTX could be supply of capital, and he arrange the system that allowed Alameda to borrow from FTX, she mentioned.
Over time, $10 to twenty billion of FTX buyer funds could be moved to Alameda, Ellison mentioned. She mentioned that a few of these funds have been then used to repay loans, cowl bills and make different investments.
The crux of Ellisons testimony on Tuesday got here when the prosecutors introduced to the jurors a spreadsheet of Alamedas funds from the autumn of 2021. Ellison says she had created the spreadsheet on the behest of Bankman-Fried, who was making an attempt to resolve whether or not to place $3 billion extra into enterprise capital investments.
When Ellison combed by means of Alamedas books, she discovered that whereas the corporate was incomes billions of {dollars}, it arguably owed much more to lenders, together with the key crypto lender Genesis. Alameda, she wrote within the spreadsheet, had a damaging asset worth of $2.7 billion, excluding their holdings of extremely risky cryptocurrencies like FTT that have been unlikely to fetch a lot precise cash if bought on the open market. This made the corporate very weak if the bigger total crypto market have been to abruptly crash.
Ellison mentioned in courtroom that she shared the doc with Bankman-Fried, and informed him that making $3 billion extra in enterprise investments would put Alameda in a considerably riskier place and make it a lot much less possible or virtually inconceivable that we might have the ability to repay our loans if all of our loans have been known as without delay.
However Bankman-Fried went forward and created the FTX Ventures Fund, which began with $2 billion.
The prosecutors then proceeded to indicate a follow-up doc from Could 2022, wherein Ellison as soon as once more warned Bankman-Fried of how precarious Alameda and FTXs monetary state of affairs could be within the occasion of the crypto crash. The doc reveals Bankman-Fried himself acknowledging her prediction: Yup, and will additionally worsen, he commented on the Google Doc.
This remark from Bankman-Fried appears to fly within the face of a vital a part of his defenses argument: that he was blindsided by swift market forces and unable to reply to them as a consequence of Ellisons management at Alameda. As a substitute, the proof appears to counsel that Ellison warned Bankman-Fried concerning the excessive threat of his enterprise choices, that he acknowledged the danger to buyer funds, and that he determined to imperil them anyway.
Ellison made different claims that steered that Bankman-Fried didn’t act in accordance together with his public declarations. She mentioned that Bankman-Fried used market manipulation techniques to take care of the value of FTTa cryptocurrency he had createdso that he might use it as collateral for loans, however would get upset if she talked about FTT buying and selling too overtly within the workplace. She mentioned that Bankman-Fried oversaw the usage of FTX buyer deposits to purchase again about $2 billion value of FTX shares owned by their rival crypto trade Binance, however didn’t disclose that info.
Ellison additionally added some private particulars about Bankman-Fried, together with his political ambitions: He thought there was a 5% probability he would develop into president some day, Ellison mentioned.
Ellison returns to the stand on Wednesday, Oct. 11.
