Trial Reveals Caroline Ellison’s Accusations Against Sam Bankman-Fried: Allegations of FTX User Funds Misuse and Presidential Aspirations, Co-Founder Wang Addresses Plea Negotiations

11 Oct 2023

Mitchell Nixon

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At his criminal trial, Sam “SBF” Bankman-Fried, the former CEO of FTX, observed as his former business partner and romantic partner, Caroline Ellison, testified. 

According to court reports on October 10, Ellison confessed to engaging in fraudulent activities during her tenure at Alameda under Bankman-Fried’s leadership. She squarely placed the responsibility for the mishandling of FTX user funds on SBF, asserting that he was the one who had established the systems that resulted in Alameda appropriating approximately $14 billion from the exchange.

Ellison reportedly stated, “Alameda took several billions of dollars from FTX customers and used it for investments… “I sent balance sheets that made Alameda look less risky than it was.”

The initial connection between Ellison and Bankman-Fried was formed during their employment at Jane Street Capital, where SBF persuaded her to leave the investment firm and join his cryptocurrency-focused ventures. It has been suggested in reports that their communication significantly waned after the collapse of FTX in November 2022.

The nature of Ellison’s relationship with SBF is a central element in the allegations against the former CEO. He held the reins of the cryptocurrency exchange while she led the Alameda team. Bankman-Fried’s fraud charges stem from allegations that he directed Alameda to access FTX user funds without their consent, using these funds for various purposes, including property acquisitions and political campaign contributions.

FTX co-founder and former Chief Technology Officer, Gary Wang, testified as one of the initial witnesses for the prosecution, starting on October 5. He claimed to have committed unlawful activities alongside Ellison and former Engineering Director Nishad Singh. During Wang’s cross-examination, SBF’s legal team appeared to be trying to shift some responsibility for the exchange’s collapse onto Ellison. They questioned the former Chief Technology Officer about her role. In their opening arguments, the defence contended that she disregarded Bankman-Fried’s request to hedge Alameda investments.

We did an article on Gary’s testimony here. 

Both Ellison and Wang were among the first insiders from FTX and Alameda to plead guilty as part of an agreement with U.S. authorities in exchange for their testimony. It remains uncertain whether Bankman-Fried will testify as part of his defence strategy.

Today also marked the conclusion of Wang’s testimony, during which he discussed his plea agreement, among other topics.

Ellison’s testimony went on to state that during the period from 2020 to 2022, a sum ranging from $10 to $20 billion in FTX user funds found its way into Alameda. This money was utilised, at least in part, to settle loans, make investments, and facilitate stablecoin conversions. Notably, there was a lack of disclosure by FTX regarding Alameda’s line of credit to investors and auditors.

The former Alameda Research CEO provided testimony regarding the firm’s repurchase of FTX Tokens (FTT) from the crypto exchange Binance, which was done through a line of credit at the direction of SBF. The reasoning behind this action was to prevent potential issues with Binance. Additionally, the firm utilised loans from Genesis as a source of funds in 2021. Ellison also expressed her doubts about her qualifications for the role of Alameda’s CEO:

“Sam said I should do it,”  Ellison stated. “I checked everything with him. He was the person I reported to. He could fire me.”

She also portrayed Bankman-Fried’s attitude toward risk, indicating:

“He [SBF] said it was okay if [there was] positive EV, expected value. He said he was willing to take large coin flips. He talked about being willing to flip a coin and destroy the world, as long as a win would make it twice as good.”

According to her testimony, Ellison received an annual salary of $200,000 and a $20 million bonus in 2021.

However, the highlight of today was no doubt Caroline’s statements surrounding SBF’s will to become the President of the United States.

The statement came after the conclusion of their romantic involvement, even though they both continued to collaborate in their leadership positions at Alameda Research and FTX until November 2022.

As of the time this information was reported, Bankman-Fried’s legal team had not yet conducted a cross-examination of Ellison. Their defence approach appeared to be centred on attempting to shift some responsibility for FTX’s downfall from SBF to Ellison, alleging that she had independently utilised the exchange’s funds at her own discretion. It’s important to note that Bankman-Fried has entered a plea of not guilty to all the charges brought against him.

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