wattWhen Sam Bankman-Fried’s defense attorney Mark Cohen delivered his opening statement in the FTX founder’s fraud trial on October 3, he sought to shift the blame for the disappearance of more than $8 billion in client funds away from his client and onto Caroline Ellison On the body. When she took the stand a week later, Allison, the executive of Bankman-Fried’s hedge fund Alameda Research, and his on-again, off-again girlfriend, laid the blame squarely on him.
Bankman-Fried’s attorneys say the failures of FTX and Alameda were due in part to Allison’s leadership failures and her refusal to reduce risks despite Bankman-Fried’s warnings. “He relied on her and trusted her,” Cohen said. Cohen claimed that Allison’s trading errors became “an issue later when the storm hit.”
The prosecution’s star witness, Allison, gave a forceful response on the witness stand, claiming the opposite was true: She was the one who warned Bankman-Fried about his risky financial behavior, but he ignored her advice , instead spending an additional $3 billion of Alameda’s funds, increasing their reliance on client funds.
Ellison has pleaded guilty to fraud and conspiracy and is widely considered the prosecution’s star witness. “He directed me to commit these crimes,” she told Bankman-Fried on the witness stand. Her testimony, combined with evidence presented by prosecutors, contradicted Bankman-Fried’s defense argument that he borrowed client funds in good faith only to be ruined by forces beyond his control, such as Eli Sen’s alleged incompetence.
Ellison and Bankman-Fried met while working as traders at Jane Street Capital Trading. Later, in March 2018, Bankman-Fried hired Allison to trade cryptocurrencies for Alameda Research, a trading firm he co-founded in 2017. She told the court that a few months later the pair began “sleeping together”. That sparked a tumultuous on-again, off-again relationship that Bankman-Fried preferred to keep secret, Allison said. In October 2021, a month before Ellison said they were back together, Bankman-Fried named Ellison co-chief executive of Alameda Research.
“I thought it was a tough job and I was inexperienced,” Allison said of the position. “If Sam thinks we should do something, I always end up listening to him.”
The pair ended up living in a penthouse in the Bahamas, the cryptocurrency exchange’s headquarters, along with many other FTX colleagues.
Alameda Research and the FTX cryptocurrency exchange, which was founded in 2019, were supposed to be separate entities. But Ellison said Alameda has used FTX as a piggy bank under Bankman-Fried’s direction from the cryptocurrency exchange’s inception. “He said FTX would be a good source of funding, and he set up a system that would allow Alameda to borrow from FTX,” she said.
Ellison said that over time, “$1 to $20 billion” of FTX client funds will be moved to Alameda. Some of the funds were then used to repay loans, pay fees and make other investments, she said.
Key to Ellison’s testimony Tuesday was that prosecutors presented jurors with a spreadsheet of Alameda’s finances from the fall of 2021. Ellison said she created the spreadsheet at the request of Bankman-Fried, who was trying to decide whether to put $3 and another $1 billion at risk. Capital investment.
When Allison combed through Alameda’s books, she discovered that while the company had made billions, it arguably owed more to lenders, including major crypto lender Genesis. She wrote in the spreadsheet that Alameda’s asset value is negative $2.7 billion, which does not include its holdings of highly volatile cryptocurrencies such as FTT, which are unlikely to fetch much if sold on the open market. Much actual money. This makes the company very vulnerable if the larger overall cryptocurrency market suddenly collapses.
Ellison said in court that she shared the document with Bankman-Fried and told him that adding $3 billion in venture capital “would put Alameda in a significantly riskier position and put The likelihood of our ability to pay is significantly reduced or nearly impossible” if all of our loans were called in immediately, our loans would be cancelled. ”
But Bankman-Fried went on to create the FTX Ventures fund, with initial funding of $2 billion.
Prosecutors then produced follow-up documents from May 2022, in which Allison once again warned Bankman-Fried how precarious Alameda and FTX’s finances would be if a cryptocurrency crash occurred. The document shows Bankman-Fried himself acknowledging her prediction: “Yes, and it could get worse,” he commented on the Google document.
This comment from Bankman-Fried appears to run counter to a key part of his defense argument: that he was caught off guard by swift market forces and was unable to respond to them because of Ellison’s leadership in Alameda . Rather, the evidence appears to show that Allison warned Bankman-Fried about the high risks of his business decisions, that he acknowledged that client funds were at risk, and that he decided to jeopardize their funds anyway.
Ellison also made other claims suggesting Bankman-Fried did not act on his public statements. She said Bankman-Fried used market manipulation tactics to maintain the price of FTT, a cryptocurrency he created, so that he could use it as collateral for loans, but said she would feel “too public” if she talked about FTT transactions. Uneasy. office. She said Bankman-Fried oversaw the use of FTX customer deposits to buy back about $2 billion worth of FTX stock owned by rival cryptocurrency exchange Binance, without disclosing that information.
Ellison also added some personal details about Bankman-Fried, including his political ambitions: “He thought he had a 5 percent chance of becoming president one day,” Ellison said.
Allison returns to the stands on Wednesday, October 11.