Sam Bankman-Fried’s ex-colleague Caroline Ellison enters courthouse before trial testimony

By Luc Cohen and Jody Godoy

NEW YORK (Reuters) – Sam Bankman-Fried’s onetime girlfriend and colleague Caroline Ellison entered the federal courthouse in lower Manhattan on Tuesday ahead of her highly-anticipated testimony against the founder of the now-bankrupt FTX cryptocurrency exchange.

The fifth day of the former crypto mogul’s trial on charges of stealing billions of dollars in FTX customer deposits kicked off with defense lawyer Christian Everdell’s cross-examination of Gary Wang, the exchange’s onetime technology chief.

Everdell asked Wang about a memo Bankman-Fried circulated in September 2022 about whether to shut down Alameda Research, the hedge fund he and Wang owned and that Ellison ran. In the memo, Bankman-Fried called Alameda’s failure to hedge its bets a “mistake.”

When Everdell asked if the decision not to hedge was Ellison’s, Wang replied that she was Alameda’s CEO at the time.

Prosecutors said last week they planned to call Ellison to take the stand once Wang finishes his testimony. She was seen entering the courthouse on Tuesday morning wearing a blue baseball cap and sunglasses, and carrying a blue thermos.

Ellison’s testimony as the trial’s star witness is likely to delve in to both Alameda’s business practices and her personal relationship with the 31-year-old former billionaire, whose lawyers are expected to try to undermine her credibility during cross-examination.

Over the summer, Bankman-Fried shared Ellison’s personal writings – in which she described feeling overwhelmed at work and hurt by a recent breakup with Bankman-Fried – with a New York Times reporter. U.S. District Judge Lewis Kaplan said that likely amounted to witness-tampering, and on Aug. 11 revoked Bankman-Fried’s bail.

The one-time wunderkind is being held at Brooklyn’s Metropolitan Detention Center for the duration of his trial, which could last up to six weeks.

Federal prosecutors in Manhattan say Bankman-Fried siphoned off FTX customer funds to his crypto-focused hedge fund, Alameda, and also used them to buy real estate and donate more than $100 million to U.S. political candidates to boost his influence in Washington, D.C.

Wang and Ellison each pleaded guilty in December 2022 as part of a cooperation agreement with the U.S. Attorney’s office in Manhattan. A third former member of Bankman-Fried’s inner circle, ex-FTX engineering chief Nishad Singh, is also expected to testify at trial. 

Wang, 30, testified last week that Bankman-Fried knew FTX was in dire financial straits in November 2022 at the time he reassured customers in a now-infamous tweet that the exchange’s assets were “fine.”

Bankman-Fried has pleaded not guilty. In opening statements last Wednesday, his lawyers acknowledged that he “overlooked” key business operations like risk management as FTX grew rapidly, but never intended to steal money. They also told jurors to question whether cooperating witnesses like Wang and Ellison were putting a new, nefarious spin on old decisions by Bankman-Fried which they had originally agreed with.

Under cross-examination by Bankman-Fried lawyer Christian Everdell on Friday, Wang acknowledged that some of Alameda’s special privileges on FTX – which included the ability to run a negative balance and borrow up to $65 billion – were implemented to help it provide liquidity on the exchange to help it grow.

Another defense lawyer, Mark Cohen, said in his opening statement last week that Alameda was given those privileges for “reasonable purposes” – part of the defense’s effort to argue that Bankman-Fried took good-faith business decisions that backfired badly, but did not defraud customers. 

(Reporting by Luc Cohen and Jody Godoy in New York; Editing by Noeleen Walder, Matthew Lewis and Nick Zieminski)