Alameda Research co-Chief Executive Officer Caroline Ellison took the stand for a second day on Wednesday in the trial of Sam Bankman-Fried, co-founder of crypto exchange FTX. Ellison, who also had an on-and-off romantic relationship with Bankman-Fried, is the most important of the government’s three star witnesses.
(Bloomberg) — Alameda Research co-Chief Executive Officer Caroline Ellison took the stand for a second day on Wednesday in the trial of Sam Bankman-Fried, co-founder of crypto exchange FTX. Ellison, who also had an on-and-off romantic relationship with Bankman-Fried, is the most important of the government’s three star witnesses.
In her first day of testimony Tuesday, Ellison detailed how Bankman-Fried directed her to orchestrate a massive fraud at FTX and Alameda. Concurring with FTX co-founder Gary Wang, who also was a government witness, Ellison said Bankman-Fried was ultimately responsible for the misuse of FTX customer funds by both companies.
Ellison, 28, pleaded guilty to seven felony counts in December. Bankman-Fried, meanwhile, has denied all allegations against him.
Read: Bankman-Fried Knew of Alameda Risks, Ex-Girlfriend Testifies
Here’s the latest from court (all times are NY):
SBF’s Mom Waves, Smiles After Court Ends for the Day (4:40 p.m.)
After the session ended and most people started to walk out, SBF’s parents came to the back of his row waiting for him to finish talking with his lawyers. Bankman-Fried turned around and his mom, Barbara Fried, smiled and waved at him.
He nodded at her and smiled back.
Then the parents left. In general, they seemed to be in good spirits. When Joseph Bankman walked into the courtroom after the lunch break earlier, he smiled and acknowledged the spectators waiting at the door.
Bankman and Fried, who are both on the potential witness list, were frequent visitors to FTX’s Bahamas headquarters, where they stayed in a beachside apartment, and Bankman even worked for the firm on philanthropic ventures.
Ellison Testimony Ends for the Day, Cross-Examination Thursday (4:10 p.m.)
After almost five hours on the witness stand for Ellison Wednesday, Judge Lewis Kaplan ended the trial for the day. She will be cross-examined by Bankman-Fried’s lawyers starting Thursday morning.
Ellison Felt She Was an ‘Unequal Partner’ in Relationship With SBF (4:00 p.m.)
Resuming her testimony, Ellison talked about writings she shared with Bankman-Fried. They both expressed feelings about their relationship in Google Docs. They discussed unhappiness about their situation and difficulties from the intersection of their personal and professional relationships.
“It made me feel bad,” she said. “I mean it made me feel like sort of an unequal partner in our relationship.”
Bankman-Fried’s bail was revoked in August after leaking Ellison’s personal writings to the New York Times.
Ellison Fights Back Tears Describing Her Worst Week (3:30 p.m.)
Ellison discussed a table of Alameda and FTX liquid assets that totaled $3.9 billion, an amount that Ellison said was “not nearly enough” to pay off FTX customers.
In a chat between her and Bankman-Fried days before the Nov. 11 bankruptcy filing, Ellison said she didn’t think she was going to handle things well if the situation got worse.
“That was overall the worst week of my life,” she said, as she began to sob. “I had a lot of mood swings during that week and a lot of different feelings. But one of the feelings I had was an overwhelming feeling of relief as I said it was something I had been dreading for several months.”
She said she experienced a sense of relief, realizing that she didn’t have to lie anymore.
“I could start taking responsibility for what I had done even though I felt horribly bad about the people who were harmed and the employees who lost their jobs,” she said.
The entire courtroom fell silent when she broke down crying after being asked by the prosecutor about her feelings that week. Every juror was looking at her on the stand, no one was taking notes.
The court clerk handed a piece of tissue paper to Ellison, who took it and lightly rubbed her nose.
Ellison Tweet, Seeking to Reassure Markets, Pushed FTT Down (3:00 p.m.)
On Nov. 6, five days before the companies filed for bankruptcy, Ellison was in Alameda’s Hong Kong office and communicating with Bankman-Fried. She said he told her to liquidate Alameda’s positions and send the money to FTX. She had preserved her messages with Bankman-Fried and Nishad Singh because of legal concerns.
In the chats, Singh gave numbers on the amount of withdrawals from FTX over the last day, saying they totaled $120 million an hour. Ellison responded with a sad face emoji, while Bankman-Fried wrote “oof.” They were unable to meet those customer withdrawals at that rate.
She said other assets on the balance sheet didn’t comfort her because they couldn’t be liquidated quickly enough. She said Bankman-Fried said someone, not him, should tweet and convey a sense of security, but Ellison considered that to be misleading.
They discussed different ideas for the tweet, according to Ellison. Bankman-Fried drafted the tweet, while Singh and Ryan Salame made edits. Ellison rewrote it in her own words and posted a thread.
Ellison said she thought more tweets from her would be reassuring. In a Signal chat called Vertex that was used to discuss Alameda’s trading, they talked about buying all of Binance’s FTT for $22. Ellison said they wanted to call Binance CEO Changpeng “CZ” Zhao, who tweeted on Nov. 6 that he planned to sell all of his crypto exchange’s FTT holdings, after which the price of FTT fell.
She moved ahead with the tweet, stating that Alameda would buy all of Binance’s FTT at $22 per token. Ellison said the price of FTT, briefly went up, stayed around $22, but ultimately went down after her tweet.
‘Intercompany Stuff’ Spreadsheet Tracked Loans to FTX Executives (2:40 p.m.)
Ellison was asked to discuss a spreadsheet about “intercompany stuff” from September 2022. It tracked loans made by Alameda to related parties and entities, as well as to FTX executives including Bankman-Fried, Gary Wang, Ryan Salame and Nishad Singh.
The loans totaled $8.2 billion and included $35 million to Salame and $20 million to Guarding Against Pandemics, the nonprofit run by Bankman-Fried’s younger brother, Gabriel Bankman-Fried.
“I understood that it was coming from Alameda and that Alameda’s money was coming from customer funds,” she said.
Ellison, Bankman-Fried Clashed Over Investment in Modulo (2:30 p.m.)
Ellison turned to another issue she had with Bankman-Fried. She didn’t support investing in Modulo, a crypto hedge fun run by Xiaoyun “Lily” Zhang, who Bankman-Fried reportedly dated when they were at Jane Street. Ellison thought the arrangement was too generous and wasn’t convinced their trading would be good.
She testified that Bankman-Fried had invested a few hundred million dollars in Modulo and told Ellison she needed to get along better with them.
Ellison said she previously had a dispute with Modulo where they had asked to do a trade with Alameda and didn’t like the price Alameda offered them.
SBF Distanced FTX, Alameda Operations Following Bloomberg Story (2:15 p.m.)
Ellison referenced a Bloomberg News story about the relationship between FTX and Alameda that Bankman-Fried was unhappy about. She testified that she gave a misleading statement during the interview for the story when said Alameda and FTX were kept at “arm’s length.” She said she didn’t want others to be aware of the closeness between FTX and Alameda.
She said in the fall of 2022 that Bankman-Fried took steps to increase the distance between FTX and Alameda, such as removing “Alameda” from the names of the firm’s entities for venture investing. Bloomberg News reported in August 2022 that Alameda’s venture capital operations had moved to FTX.
Bankman-Fried was also concerned about an audit from the Commodity Futures Trading Commission for futures licenses.
FTX Co-Founder Gary Wang discussed the Bloomberg story during his testimony last week.
Read more: FTX’s Final, Frantic Days Through the Lens of an SBF Insider
Image-Conscious SBF Ditched Luxury Car for a Toyota Corolla (1:50 p.m.)
Ellison noted that Bankman-Fried wanted to “cultivate an image of himself as a very smart, competent, somewhat eccentric founder” and wanted FTX to seem like “an exciting, innovative place to trade” that was also safe and regulated. But Ellison said that this was not the case, since they were using billions of dollars in customer funds that they couldn’t repay.
“It wasn’t a safe place for customers to keep their money,” she said.
She discussed Bankman-Fried’s personal appearance, noting that he looked like he didn’t put in much effort. She said he considered his curly black hair to be “very valuable” and believed it contributed to higher bonuses at Jane Street.
They initially bought luxury cars when they moved to the Bahamas, but eventually switched to less valuable vehicles.
“He said he thought it was better for his image to be driving a Toyota Corolla,” she said.
Ellison Says She Tried to Avoid the Press; SBF, ‘The Opposite’ (1:45 p.m.)
The trial is now resuming. Spectators waited outside the courtroom at the end of the lunch break, near a newly placed metallic sign warning spectators not to bring electronic devices into Judge Lewis Kaplan’s courtroom.
On retaking the stand, Ellison talked about how she and Bankman-Fried approached the media.
“I generally try to avoid press and media when possible,” Ellison said. Bankman-Fried was the “same except exactly the opposite.”
Ellison Says SBF Blamed Her for Everything (12:45 p.m.)
Ellison said that in the fall of 2022, she was avoiding spending time with Bankman-Fried in social settings and having one-on-one conversations with him because they had broken up a few months prior. Ellison said on the stand Tuesday that they had ended their relationship in the spring.
“I still gave him the same regular updates I had on Alameda’s balance sheet and our financial situation,” she said.
In August 2022, they had a conversation in the apartment of their $30 million penthouse in the Bahamas, according to Ellison. Bankman-Fried said he blamed her for everything and Ellison said she started crying.
“Sam started saying that he thought Alameda should have hedged way more earlier in the year, that it was a big mistake, that it was my fault and I was largely responsible for the financial situation,” she said.
The prosecution presented a note Ellison wrote titled “things Sam is freaking out about.” Fourth on the list was “getting regulators to crack down on Binance,” an FTX rival. Ellison said Sam thought this would be the best way for FTX to get market share.
“He said that if there was a regulatory action against Binance a lot of customers might move to FTX,” Ellison said.
Other items on the list included “Bad PR” over FTX and Alameda’s relationship, buying stock in Snap Inc., “raising from MBS” and “getting capital from BlockFi.”
The trial is now on break for the next hour, with the prosecution anticipating one and a half hours more of direct questioning of Ellison.
Ellison Says ‘Large Bribe’ Paid to Chinese Officials (12:15 p.m.)
Ellison said she and Bankman-Fried spoke about illegal activity in coded terms, mentioning a chat where they paid a “large bribe” to Chinese officials in November 2021.
At the time, $1 billion of Alameda’s funds were frozen on crypto exchanges OKX and Huobi, according to Ellison. Alameda was told by the exchanges that it was part of a money laundering investigation into a person who had traded with Alameda.
Bankman-Fried held several meetings with Ellison, FTX co-founder Gary Wang, FTX engineering head Nishad Singh, FTX Chief Operating Officer Constance Wang and two other employees about the bribe, according to Ellison. She said that Constance Wang, and the two other employees, had connections in China, and one of the employee’s father was a government official. Alameda then hired a lawyer to negotiate with the Chinese government, but the effort was unsuccessful.
They then tried to move the funds through trading, but that didn’t work, according to Ellison. There were debates over other methods, with Bankman-Fried yelling to “shut the f**ck up” at one point, she said, noting that Bankman-Fried didn’t act that way often, but sometimes did so in busy or stressful situations.
Eventually, the company figured out a way to get the account unfrozen, which required making a $100 million payment in November 2021, she said.
Judge Kaplan advised the jury that Bankman-Fried is not charged with any crimes related to the possible bribe in China in this case. A charge related to the issue was severed from this trial.
Ellison said she lied to other employees about the bribe.
“I didn’t want the facts of our crimes to get out,” she said.
SBF Uses New York Times Headline Test; Disappearing Messages (12:05 p.m.)
When asked about Alameda being able to repay the $13 billion, Ellison said that she had been in a state of dread over the fear that FTX customers and lenders would be hurt.
“We would either have to hope the crypto market would go up or sell a large amount of FTX equity or something along those lines,” she said.
She said Bankman-Fried directed her to use the disappearing message feature in the Signal for their conversations and that they should use “The New York Times test” where they should imagine how everything said in the chat would look as a headline. For highly sensitive matters, Bankman-Fried said these discussions should happen in-person.
Bankman-Fried’s bail was revoked in August after leaking Ellison’s personal writings to the New York Times.
Ellison Describes Bid to Have Saudi Crown Prince Buy FTX Shares (11:50 a.m.)
By September 2022, Alameda’s borrowing from FTX had risen to around $13.7 billion due to the trading platform’s continuous need to repay its loans, Ellison said. The following month, that number had grown to $14 billion.
Among the names to whom Alameda owed money were crypto lenders BlockFi, Voyager Digital and Celsius – all companies that have since filed for bankruptcy.
As Ellison and Bankman-Fried discussed ways for Alameda to recover some funds, she said Bankman-Fried raised the possibility of asking Saudi Arabia’s Crown Prince Mohammed bin Salman to buy shares in FTX. The FTX co-founder had dinner with the prince in Riyadh in late October when visiting for a conference, arranged by financier Anthony Scaramucci.
“The rationale was to decrease our risk from further cryptocurrency down-moves,” Ellison said, noting that Bin Salman was considered a primary target for fresh funding. “We would raise capital by selling FTX equity.”
SBF Attitude Made Ellison More Willing to ‘Lie and Steal’ (11:30 a.m.)
Bankman-Fried’s philosophy was that as a “utilitarian,” he didn’t believe in the ways that people tried to justify rules, such as those against lying and stealing, Ellison said.
“He thought the only moral rule that mattered was doing whatever would maximize the utility,” Ellison said, referring to whatever would create the greatest amount of good.
That attitude in turn “made me more willing to do things like lie and steal,” she said. The philosophical approach known as utilitarianism is similar to some of the arguments that propelled the Effective Altruism movement, of which Bankman-Fried was a visible proponent.
“When I started working at Alameda I don’t think I would have believed if you told me I would be sending false balance sheets to our lenders or taking customer money, but over time it was something I felt more comfortable with,” Ellison added.
Jurors Pay Close Attention to Documents; Scattered Laughter Over ‘Borrows’ (11:15 a.m.)
Despite a numbers-heavy morning of testimony, jurors appeared to have been paying close attention to Ellison and the documents shown by prosecutors. There was scattered laughter in the gallery when Ellison said she had called the money Alameda had borrowed from FTX as “borrows” because she didn’t want to say something explicit like “customer money.”
Ellison, wearing a dark suit, white blouse and black skirt, reentered the courtroom after a break.
Genesis Received Balance Sheet Called ‘Alternative 7’ (11:00 a.m.)
One balance sheet that Bankman-Fried ended up choosing for Ellison for one lender, Genesis, was known as “Alternative 7.” An entry on the balance sheet for the amount Alameda had borrowed from FTX was removed.
The effect was that it looked like the loans were safer than they actually were, Ellison said. Ultimately, Alameda’s liabilities went down from $15 billion on its original balance sheet to around $10 billion on the Alternative 7 version.
Ellison said she knew that FTX executives and entities didn’t have the money to repay Alameda what it had lent out, as those funds had been invested into various things.
Ellison Prepared Seven Balance Sheets at SBF’s Direction (10:35 a.m.)
As crypto prices spiraled and Alameda’s loans were being called in June 2022, Ellison said she was mostly concerned that someone would find out about Alameda and FTX’s situation and “it would all come crashing down.”
Bankman-Fried and Ellison discussed Alameda’s balance sheet, which showed that the business had borrowed around $10 billion from FTX and had loaned around $5 billion to FTX executives and affiliated entities. “Overall it showed that Alameda was in a very risky position,” she said.
At Bankman-Fried’s direction, she prepared seven different versions of Alameda’s balance sheet to potentially show to lenders, fearing that the real version would lead customers to withdraw money.
“He suggested I should prepare some alternative ways of presenting the information and send it to him,” she said. “I understood him to be directing me to come up with ways to conceal things in our balance sheet we both agreed would look bad.”
Alameda Borrowed $13 Billion from FTX Customers by June 2022 (10:15 a.m.)
Ellison shared an updated balance sheet with Bankman-Fried in mid-June 2022, a period that she described as “a time of crisis for Alameda.”
By that time, Alameda had borrowed around $13 billion from FTX customers, she estimated, in addition to having $1.3 billion in open-term loans from third-party lenders like Genesis. Around $3 billion of its borrowing from FTX was still stored on the crypto exchange.
“I understood that he was telling me to borrow money from our FTX line of credit to repay loans when they were recalled,” Ellison said.
Ellison ‘Stressed Out’ Over Alameda Losses (9:50 a.m.)
Everyone in the courtroom rose as jurors entered and Ellison took her seat on the stand. Prosecutors picked up with Tuesday’s testimony about events in May 2022, when crypto prices began to fall after the collapse of the TerraUSD stablecoin and its sister token Luna.
The market crash made Alameda’s assets depreciate significantly since the company held most of its value in cryptocurrencies, Ellison said, though the firm’s day-to-day trading at that time was still profitable.
Alameda lenders like Genesis Trading began to call Alameda’s loans in mid-June, Ellison said – loans that it was obligated to repay because they were open-term. Bankman-Fried used messaging platforms like Slack and Telegram to communicate with Alameda’s lenders, with the jury shown a chat log from one such conversation where Genesis requested the return of $400 million in loans.
“I was very stressed out,” Ellison said. “We were talking about billions of dollars. I knew Alameda had lost a lot of money in the cryptocurrency downturn.”
–With assistance from Emily Nicolle.
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