Sam Bankman-Fried Caroline Ellison, the former head of a cryptocurrency hedge fund and a star witness in the government’s criminal fraud case against the founder of FTX, testified Tuesday that she and her former boss defrauded clients, investors and lenders.
“Yes, we did,” Allison said when Assistant U.S. Attorney Danielle Sassoon asked her if she committed a crime. “I mean Sam and I and others.”
Ellison later listed her crimes in a downtown Manhattan courthouse: “Fraud, conspiracy to commit fraud and money laundering.”
Ellison, a principal at Alameda Research, pleaded guilty in December to two counts of wire fraud, two counts of conspiracy to commit wire fraud, conspiracy to commit commodities fraud, conspiracy to commit securities fraud and conspiracy to commit money laundering. Part of the 28-year-old’s plea agreement with the government involves cooperating with prosecutors in their case against Bankman-Fried.
Ellison’s testimony began at 12:37 p.m. and lasted less than 10 minutes before the courtroom began for lunch. Operations resumed after 2pm and ran two separate, hour-long blocks in the afternoon. Prosecutors said Allison is likely to spend much of Wednesday testifying.
Wearing a maroon dress, a loose gray blazer and glasses, Allison briefly described how she met Bankman-Fried. They met while she was interning at a proprietary trading firm on Jane Street in New York. They later worked together in Alameda and dated for several years, she said, adding that Bankman-Fried had always been her boss.
Allison was one of Bankman-Fried’s earliest hires in Alameda in 2017. Bankman-Fried reportedly persuaded the Stanford University graduate to give up his job at Jane Capital and join Alameda as a trader while the hedge fund was still in its original San Francisco offices. bay area.
Former Alameda Research CEO Carolyn Allison (center) arrives in a New York courtroom on October 10, 2023.
Yuki Iwamura | Bloomberg |
When Sassoon asked to identify the defendant, Allison stood up and looked around the room for nearly 30 seconds. She turned her head all the way to the left toward the jury box, then back to the right multiple times before finally confirming that Bankman-Fried was sitting “over there, in a suit.” The two didn’t make eye contact when Allison walked by earlier. Bankman-Fried, known for his shaggy hair and board shorts, got a new haircut ahead of his trial, which he reportedly got from a fellow inmate at a Brooklyn jail where he has been since August imprisoned in this prison.
Bankman-Fried was the original CEO and owner of Alameda, Allison said.
“Sam directed me to commit these crimes,” she said. He “instructed us to take the client’s money to repay the loan.”
Bankman-Fried, 31, faces seven federal charges, including wire fraud, securities fraud and money laundering, all related to the collapse of FTX and Alameda late last year. If convicted in a trial that began a week ago, Bankman-Fried could spend the rest of his life in prison. He pleads not guilty.
“We really don’t have the money to do this”
The Bankman-Fried case centers on the flow of billions of dollars from FTX’s customer accounts to Alameda, which left a huge hole in its balance sheet after the cryptocurrency market turned in 2022.
Ellison said Alameda took billions of dollars from FTX clients and that Bankman-Fried not only set up a system to steal the funds but also directed Ellison and others to use client funds to repay approximately $100,000. billion dollar loan.
“We ended up taking about $14 billion, some of which we were able to repay,” she said. “I followed Sam’s instructions and sent a balance sheet to the lender that incorrectly stated Alameda’s assets and liabilities.”
She said the numbers were adjusted to make Alameda appear less risky as an investment.
After a lunch break, Allison was asked about her relationship with Bankman-Fried. She said they started dating in the summer of 2021, although they slept together on and off before then. The relationship was on and off until the spring of 2022, when they split for good.
Allison said she soon discovered after being hired that conditions in Alameda were much worse than she expected. The company suffered huge losses, lenders withdrew their capital, and more than half of its employees resigned.
Regarding the mix of funds, Allison said that Bankman-Fried was still CEO of Alameda when it began to move funds from FTX to hedge funds. Allison said she was under the impression these were FTX client funds because the amounts exceeded the exchange’s profits and the amount of funds it had struggled to raise.
Allison said that 2020 was the earliest time in her memory that FTX customer funds were transferred to Alameda bank accounts. She said the transfers totaled $10 billion to $20 billion. Some of this is used for expenses and repaying loans and investments. About $8 billion was spent on Alameda trade and other purposes, she said.
Allison testified that in mid-2021, when FTX bought back stakes in the company from rival exchange and early investor Binance, it used $1 billion in customer funds to trade. Ellison, Bankman-Fried and Sam Trabucco, co-chief executive of Alameda, FTX’s Hong Kong office, had a face-to-face conversation.
On October 3, 2023, in the Federal Court of New York City, U.S. District Judge Lewis Kaplan presided over the trial of Sam Bankman-Fried due to the bankruptcy of FTX (the bankrupt cryptocurrency exchange). Fraud trial in the case of bankruptcies.
Jane Rosenberg | Reuters
“We really didn’t have the money to do it,” Allison recalled. “We had to borrow money from FTX to do that.”
Bankman-Fried told her it didn’t matter because it was important and “we have to get it done,” she said.
Enter the FTT token. Bankman-Fried created the digital currency, and Alameda initially owned 60 to 70 percent of the supply without paying any fees. In the heyday of cryptocurrencies, projects often created their own currencies, which were often traded on various exchanges in a manner similar to stocks.
When the FTT token was issued in the seed round, the price was 10 cents. When listed on the exchange in 2019, the price was $1. FTT eventually traded at about $50 per token, boosting Alameda’s stake into the billions.
Allison said she was instructed to put FTT tokens on Alameda’s balance sheet in order to obtain more loans from companies such as Genesis. Allison testified that she thought the move was misleading, but Bankman-Fried assured her it would be a separate project and that it would be okay.
Other cryptocurrencies have also been added to Alameda’s balance sheet and are known internally as “SamCoins.” Solana and Serum are examples.
Another issue Allison highlighted was Alameda’s roughly $5 billion in personal loans to insiders, including a $35 million loan to former FTX executive Ryan Salame that was used to finance Republican political candidates. Donate. Ellison said she learned of the loans while preparing Alameda’s balance sheet.
Ellison testified that she was concerned about the loans because they would actually be used for “illiquid businesses like early-stage companies.” Because of the structure of the loans, they could be called back at any time, leaving Alameda at risk of bankruptcy.
“Sam directed us to borrow as much money as we could on any terms,” she testified.
Ellison said her analysis shows Alameda has $9.4 billion in loans from third-party lenders and $8 billion in liquid assets. Subtracting “Sam coins”, the net asset value is negative $2.7 billion.
Ellison said Bankman-Fried had gained attention for his large political donations, which he called “very effective” and “gained a very high return on influence for a relatively small amount of money spent.” She cited Bankman Fried’s $10 million donation to Joe Biden’s presidential campaign as an example.
Ellison testified that her base salary was $200,000, with two bonuses per year ranging from $100,000 to $20 million. She also received compensation in FTX equity, equivalent to approximately 0.5% of the company.
After leaving the courtroom, Allison walked outside and got into the wrong SUV. She had to cross the street to get into another car. Allison was asked by reporters outside why she didn’t recognize Bankman-Fried. Another member of the media asked why she was paid less than men. She ignored both questions.
—CNBC’s Dawn Giel and Dan Mangan contributed to this report
watch: Carolyn Allison testifies Sam Bankman-Fried directed her to commit crime