FTX Latest: Ellison Laughed Nervously at Meeting Before FTX Fall

We’re continuing to follow along as former Alameda Research Chief Executive Officer Caroline Ellison enters her third day on the stand in the criminal fraud trial against her ex-boyfriend, FTX co-founder Sam Bankman-Fried.

(Bloomberg) — We’re continuing to follow along as former Alameda Research Chief Executive Officer Caroline Ellison enters her third day on the stand in the criminal fraud trial against her ex-boyfriend, FTX co-founder Sam Bankman-Fried.

Ellison on Wednesday detailed how she worked with Bankman-Fried to lie about the health of Alameda and FTX and deceive lenders and customers. She testified that she falsified Alameda’s balance sheets, at the direction of Bankman-Fried, to conceal that the firm was taking in large sums of money from FTX customers.

Ellison said when the FTX empire finally came crashing down in November 2022, it was the “worst week of my life,” but that she felt a sense of relief that she no longer had to lie.

Here are some stories to catch up on Wednesday’s testimony:

FTX Bribes, Dating Diary, False Records: Ellison Testimony

Caroline Ellison Says ‘Sam Was the One’ Who Caused FTX Collapse

Here’s the latest from court (all times are NY):

Ellison Said on Call Alameda Was ‘Kind of Fun’ (5:15 p.m.)

In an audio clip of the Nov. 9, 2022, meeting played by the defense, an attendee told Ellison, “I’m sure this is not that fun for you.”

“I mean it was kind of fun,” she replied. The jury listened intently whenever the recordings were played.

After that, the prosecution briefly questioned BlockFi CEO Zac Prince, whose company was bailed out by FTX in the summer of 2022 as the crypto lender struggled during the market downturn in digital assets. The company filed for bankruptcy near the end of November following FTX’s collapse.

When Prince walked into the courtroom, Bankman-Fried raised his head to take a look. For most of the day, Bankman-Fried had typed at his laptop and at times wrote on Post-It notes. 

Court proceedings have ended for the day. Prince will return to the stand Friday, which is scheduled to be a half-day.

Ellison Laughed Nervously at Meeting Before Bankruptcy (4:15 p.m.)

In audio clips played to the jury from the Nov. 9, 2022, Alameda all-hands meeting — days before the company filed for bankruptcy — Ellison spoke about the firm’s troubles. Her tone was calm, similar to how she sounded on the witness stand.

“The basic story here is that starting last year, Alameda was kind of borrowing a bunch of money via open-term loans and used that to make various illiquid investments,” she said on the tape.

The software engineer, Christian Drappi, told the court that during the meeting, Ellison was “kind of slouching” and “did not display confident body language.” He said he was concerned about Ellison’s statement that FTX was attempting to raise funds to fill the hole in its balance sheet.

“Generally, when a company raises money, it’s about exciting future growth and not to fill a hole in the balance sheet,” he said.

On the tape played in court, Ellison was heard laughing nervously. Drappi said she did that quite often.

Drappi testified he resigned within 24 hours of the meeting.

Prosecutors Call Ex-Alameda Software Engineer as Witness (3:30 p.m.)

Prosecutors called their next witness, Christian Drappi, a former software engineer who began working at Alameda in May 2021 and wrote code to support Alameda’s trading.

Ellison Says Bankman-Fried Wouldn’t Let Her Quit (3:05 p.m.)

At the close of prosecutors’ redirect questioning, she said that at one point, she told Bankman-Fried she wanted to quit and he rebuffed her. 

“He said I couldn’t I was too important to Alameda and I should stay at Alameda,” Ellison said. 

She said she didn’t resign “because I trusted his opinion and I didn’t want FTX and Alameda to collapse. And if he thought my resigning would do that, I didn’t want to do that.”

Ellison Says Employees Were Grateful She Was ‘Open, Honest’ (2:55 p.m.)

Prosecutors asked Ellison more questions about the meeting on redirect. She said the Alameda employees were upset about her wrongdoing, but were grateful she had been “open and honest with them.”

“I never liked misleading my employees,” she said. “I felt really bad about them but I felt trapped in the summer of ’22.”

She said that she hasn’t spoken to Bankman-Fried, Gary Wang or Nishad Singh since mid November 2022.

Her testimony is finished and the proceedings will resume after the break.

Ellison Says She Admitted Wrongdoing to Employees (2:40 p.m.)

As cross-exam came to a close, Cohen asked Ellison about a meeting with Alameda employees where she said that the firm was likely to wind down.

She said she wrote to Bankman-Fried before the meeting, saying that there was “no pressure” on him to participate, but “if you do want to help with stuff like making sure lenders get repaid I’d appreciate it.”

Ellison said that she put a lot of thought into what to say at the meeting.

“A lot of employees had been asking me about what was going on or what the implications was for them,” Ellison said. “I was hoping that some might stay, but if my goal was to get them to stay, I would have asked them to stay. My goal was to inform Alameda employees what had been going on and what the implications were.”

“Were you admitting wrongdoing to the employees?” Cohen asked.

“Yes I was,” Ellison said.

After the meeting, Ellison told Alameda executives in a Signal chat that she had spoken to the employees and thought it had gone well.

Ellison’s testimony is now finished and the court is taking a short break.

MBS on List of things Bankman-Fried ‘Freaking Out’ About (2:30 p.m.)

The defense revisted a list of things that Bankman-Fried was “freaking out” about. 

The defense questioned her about an item on the list that said “MBS,” a reference to Saudi Crown Prince Mohammed bin Salman.

“He told me he went to the Middle East and tried to raise funds there but it didn’t sound like he had success,” Ellison said Thursday.

In earlier testimony, Ellison discussed how Bankman-Fried met with potential investors in the Middle East.

Ellison Said Net Asset Value of Spreadsheets Was Positive (2:15 p.m.)

Ellison said the net asset value on all of the seven spreadsheets was the same, but that she wasn’t as concerned as much about that figure as she was about how some of the loans had put money into illiquid investments.

“The number was so large it might look like Alameda was giving or funneling money to FTX executives,” she said Thursday.

On Wednesday, Ellison testified that Alameda had borrowed around $10 billion from FTX and had loaned around $5 billion to FTX executives and affiliated entities.

SBF Lawyer Brings Ellison Back to Seven Spreadsheets (1:55 p.m.)

After the lunch break, Ellison testified about how she was worried about Alameda’s lenders recalling loans in June 2022.

She discussed this period during her testimony on Wednesday, when she talked about preparing seven different spreadsheets under Bankman-Fried’s direction that showed Alameda’s balance sheet, including its loans to FTX executives and how much it had borrowed from FTX.

“I don’t recall if we discussed all of them, I know we discussed some,” Ellison said of the seven different spreadsheets on Thursday.

Ellison More Relaxed Under Cross Than on Previous Days (12:40 p.m.)

The court went into the lunch break with Ellison appearing more relaxed than in previous days. 

As jurors left the room, she stood up and put both her hands on her hips. This differs from her postures earlier in the week, when she looked more restrained.

Ellison Says She Wasn’t as Good a Manager as She Could Be (12:30 p.m.)

Ellison discussed working with Sam Trabucco prior to his departure from Alameda, and how their inexperience contributed to Alameda’s problems. 

“By limiting factors in scaling I meant those were things that were preventing Alameda from doing as well and making as much money as we could,” Ellison said. “I thought the biggest factor was that Trabucco and I weren’t as good managers or leaders as we could be and we weren’t pushing employees to you know make new things or do better in the way that I wished we were.” 

Ellison Told Prosecutors SBF Might Not Know What Was Happening (12:15 p.m.)

The defense landed a small victory in its questioning of Ellison related to legacy FTX customers continuing to wire money to Alameda bank accounts, even after the exchange got its own account.

Ellison says she suggested to Bankman-Fried in a Signal chat they stop those transfers. “Yeah that sounds good,” she says he replied.

She recalled telling prosecutors that “it seemed like he might not know” that was happening, helping the defense poke a hole in the idea that Bankman-Fried was always calling the shots at Alameda.

Ellison Says Alameda Had Improper Advantage at FTX (11:50 a.m.)

Ellison says there was a discussion of a “Chinese wall” — Cohen’s words though Ellison has used the phrase in the past — between Alameda and FTX and whether there should have been more separation between the two, such as separate workspaces.

Prior to FTX’s collapse, she told Bloomberg in an interview that the exchange and Alameda were completely walled off from each other.

“We definitely have a Chinese wall in terms of information sharing to ensure that no one in Alameda would get customer information from FTX or anything like that, or any sort of special treatment from FTX,” she said at the time. “It’s very important for FTX to be perceived as a fair, neutral marketplace where everyone gets an equal shot.”

In response to Cohen’s questioning Thursday, she testified that Alameda’s ability to borrow FTX customer funds for its own trading was an “improper advantage” and put customers at risk of losing money, especially when the funds were used for venture investments.

“There was a risk that the investments would go down or go to zero,” she said.

Ellison Questioning May Stretch Into Friday (11:30 a.m.)

Bankman-Fried’s attorney, Mark Cohen, tells Judge Lewis Kaplan that his goal is to finish questioning Ellison Thursday, but it could spill over into Friday. Cohen then turns to a new topic — the companies’ terms of service.

In a letter filed to the court docket during the cross-examination, Bankman-Fried’s lawyers told the judge they wanted to cross-examine witnesses about their understanding of FTX’s terms of service. 

In the letter, Cohen challenged the government’s position that the use of FTX funds for Alameda investments constituted theft under US law and said the defense hoped to argue the transfers were permitted under the exchange’s customer agreement, which is governed by UK law.

Cohen asked Kaplan to reconsider a previous ruling barring expert testimony on the subject by London trial lawyer Lawrence Akka, who intends to testify that, under UK law, FTX’s terms of service obligated it to honor customer withdrawal requests but didn’t constrain it from using the funds for any particular purpose in the interim.

FBI Seized Computers Belonging to Mother, Boyfriend (11:00 a.m.)

Ellison testifies that she didn’t know about government investigations into FTX and Alameda until sometime after a November all-hands meeting.

She left Hong Kong and returned to her parent’s home in the US, which was searched by the Federal Bureau of Investigation. “My boyfriend was there as well as my mom’s cleaner,” she says.

Ellison says that the FBI seized computers belonging to her mother and her new boyfriend, who also worked at Alameda and FTX.

She says she had a series of meetings with the government in December, each lasting a few hours. Ellison pleaded guilty to criminal charges and entered into a cooperation agreement with prosecutors that month.

She said that she likely had more than 20 meetings with prosecutors, including one that lasted three to four hours on Monday.

Ellison Found It Hard to Talk to SBF After Breakup (10:45 a.m.)

Bankman-Fried’s defense lawyer asks questions that try to show how communication between the pair broke down after they split up. She said that she had difficulty having one-on-one conversations with Bankman-Fried after that.

“I tried to avoid those and avoid spending much time in social settings,” she said. “We talked sometimes outside of work. He still lived in the same apartment, so it’s hard to avoid that entirely.”

However, she reiterated her testimony from Wednesday, saying they continued to have business conversations over the messaging app, Signal.

Trabucco Leaves Alameda; Buys ‘Soak My Deck’ (10:30 a.m.) 

The defense pivots to questions about Ellison’s former co-CEO Sam Trabucco, Bankman-Fried’s friend from math camp and college. Ellison described him as “good under pressure and good at handling extreme trading situations.” Ellison was more focused on areas like strategy and operations.

Trabucco announced in August 2022 that he was stepping down from his position “to prioritize other things.” He purchased a yacht named “Soak My Deck.” Ellison, however, said he stopped coming into the office and handling his job in late 2021. 

That left the role to her, she said. Ellison testified that she and Bankman-Fried discussed adding another co-CEO when Trabucco stepped down, but Ellison didn’t think the possible candidate made sense.

Bankman-Fried Didn’t Always Pay Attention to Alameda (10:15 a.m.)

The defense, in an attempt to bolster the argument that Ellison — not Bankman-Fried — was in charge at Alameda, asks if there were times when he was absent from its daily operations.

“There were periods of time when he wasn’t paying attention to Alameda” or interacting with the firm’s executives, she said. 

Bankman-Fried has for months suggested that his ex-girlfriend was primarily responsible for Alameda’s borrowing and that his mistake was failing to supervise her and pay closer attention to what was happening. He’s denied knowingly committing any crimes.

Here’s a reminder of who’s who at FTX and Alameda:

Read more: The Key Players at Sam Bankman-Fried’s Historic Fraud Trial

Ellison Says She Initially Thought FTX Was a Bad Idea (10:00 a.m.)

Cohen begins questioning Ellison about her views on Bankman-Fried, who she described as “ambitious” and a hard worker, as well as other members of his former inner circle. That includes FTX co-founder Gary Wang, and the company’s former director of engineering Nishad Singh — both have pleaded guilty for their role in the alleged scheme and are cooperating with prosecutors in the case against Bankman-Fried. Wang testified before Ellison.

Ellison said Bankman-Fried took risks she wouldn’t have, including starting FTX, which she thought was a bad idea at the time. The exchange was founded in 2019 and was once valued at $32 billion.

Ellison said she thought he would have a difficult time attracting customers and that it would be a waste of time. She also agreed that she and Bankman-Fried had different ways of handling stress, after previously testifying about how taxing her role at Alameda could be.

Ellison Takes the Stand as Cross-Examination Begins (9:40 a.m.)

Ellison, in a wine-colored dress and dark blazer, is in the courtroom. She’s standing as the jurors enter.

Bankman-Fried’s attorney, Mark Cohen, picks up questioning, asking about the names and purposes of different Alameda bank accounts.


–With assistance from Anthony Lin and Allyson Versprille.

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