FTX was a boys’ club. When Caroline Ellison asked Sam Bankman-Fried for equity in the hedge fund she ran, he said ‘it was too complicated’
Ben Weiss
Tue, October 10, 2023
Michael M. Santiago—Getty Images
Caroline Ellison is arguably the star witness in the government’s case against Sam Bankman-Fried, the former CEO of the bankrupt crypto exchange FTX who’s on trial for fraud. And what became apparent during her testimony on Tuesday is that, compared with three other key lieutenants who’ve all turned on their former boss, she took similar risks for far smaller rewards.
Ellison, who testified that she conspired with Bankman-Fried “to commit these crimes,” is the former CEO of Alameda Research, a crypto hedge fund Bankman-Fried also owned. She was given no equity in Alameda and only half-a-percentage-point stake in FTX. When she broached a conversation with him over receiving equity in the hedge fund, he was “initially receptive” but later told her “it was too complicated.”
Gary Wang, cofounder and the former CTO of FTX, had a 16% stake in FTX and a 10% stake in Alameda. Nishad Singh, former director of engineering at FTX, owned 5% of the company, according to Michael Lewis’s recent SBF tell-all. And Bankman-Fried owned the lion’s share—90% of Alameda and more than half of FTX, per Lewis.
Moreover, while the three siphoned billions of dollars in personal loans out of Alameda—what prosecutor Danielle Sasson called “loans to insiders”—Ellison took out a comparatively minuscule $1.3 million to invest in a startup, she said on Tuesday. Even Ryan Salame, co-chief of FTX’s Bahamas subsidiary whom past witnesses don’t usually cite as part of the FTX inner circle, took out $35 million to donate to Republican political campaigns.
Ellison was, by most measures, handsomely compensated during her time working for Bankman-Fried, whom she also dated on and off. She had a base salary of $200,000 in addition to large bonuses, including a $20 million haul in 2021, half of which she said she invested in a startup. (Prosecutors later told the judge that she personally invested in AI darling Anthropic, but it was unclear whether that was in reference to the $10 million she mentioned as part of her prior testimony.)
However, her comparative lack of compensation with those in the boys' club of Bankman-Fried, Singh, and Wang highlights a continuing theme throughout her testimony: how she, the only woman in Bankman-Fried’s inner circle, answered to him and his lieutenants, not the other way around.
Bankman-Fried has previously laid the blame for the collapse of FTX at Ellison’s feet, saying in writings published by the New York Times that she didn’t appropriately hedge against risk. “She continually avoided talking about risk management—dodging my suggestions—until it was too late,” he wrote. And Mark Cohen, one of his lawyers, hit again and again on this theme in his opening statement, repeatedly mentioning Ellison by name. “As the majority owner of Alameda, he spoke to Ms. Ellison, the CEO, and he urged her to put on a hedge, something that would protect against such a downturn,” Cohen said of his client.
Ellison, though, repeatedly emphasized in her testimony that it was Bankman-Fried who told her to ignore the considerable risks Alameda was running. In late 2021, for example, she told Bankman-Fried why it would be incredibly risky for Alameda to take out $3 billion in loans to invest in startups—it would further imbalance the hedge fund’s balance sheet. Even after she raised her concerns, Bankman-Fried said that he planned to go ahead and take out billions of dollars in loans, unveiling FTX Ventures in January 2022.
At one point, prosecutors asked Ellison about her ex’s appetite for risk. If there were a 50% chance that a coin flip would lead to the world being “twice as good,” she said, “he’d be happy to flip a coin if it turned up tails and the world was destroyed.”
This story was originally featured on Fortune.com
Ben Weiss
Tue, October 10, 2023
Michael M. Santiago—Getty Images
Caroline Ellison is arguably the star witness in the government’s case against Sam Bankman-Fried, the former CEO of the bankrupt crypto exchange FTX who’s on trial for fraud. And what became apparent during her testimony on Tuesday is that, compared with three other key lieutenants who’ve all turned on their former boss, she took similar risks for far smaller rewards.
Ellison, who testified that she conspired with Bankman-Fried “to commit these crimes,” is the former CEO of Alameda Research, a crypto hedge fund Bankman-Fried also owned. She was given no equity in Alameda and only half-a-percentage-point stake in FTX. When she broached a conversation with him over receiving equity in the hedge fund, he was “initially receptive” but later told her “it was too complicated.”
Gary Wang, cofounder and the former CTO of FTX, had a 16% stake in FTX and a 10% stake in Alameda. Nishad Singh, former director of engineering at FTX, owned 5% of the company, according to Michael Lewis’s recent SBF tell-all. And Bankman-Fried owned the lion’s share—90% of Alameda and more than half of FTX, per Lewis.
Moreover, while the three siphoned billions of dollars in personal loans out of Alameda—what prosecutor Danielle Sasson called “loans to insiders”—Ellison took out a comparatively minuscule $1.3 million to invest in a startup, she said on Tuesday. Even Ryan Salame, co-chief of FTX’s Bahamas subsidiary whom past witnesses don’t usually cite as part of the FTX inner circle, took out $35 million to donate to Republican political campaigns.
Ellison was, by most measures, handsomely compensated during her time working for Bankman-Fried, whom she also dated on and off. She had a base salary of $200,000 in addition to large bonuses, including a $20 million haul in 2021, half of which she said she invested in a startup. (Prosecutors later told the judge that she personally invested in AI darling Anthropic, but it was unclear whether that was in reference to the $10 million she mentioned as part of her prior testimony.)
However, her comparative lack of compensation with those in the boys' club of Bankman-Fried, Singh, and Wang highlights a continuing theme throughout her testimony: how she, the only woman in Bankman-Fried’s inner circle, answered to him and his lieutenants, not the other way around.
Bankman-Fried has previously laid the blame for the collapse of FTX at Ellison’s feet, saying in writings published by the New York Times that she didn’t appropriately hedge against risk. “She continually avoided talking about risk management—dodging my suggestions—until it was too late,” he wrote. And Mark Cohen, one of his lawyers, hit again and again on this theme in his opening statement, repeatedly mentioning Ellison by name. “As the majority owner of Alameda, he spoke to Ms. Ellison, the CEO, and he urged her to put on a hedge, something that would protect against such a downturn,” Cohen said of his client.
Ellison, though, repeatedly emphasized in her testimony that it was Bankman-Fried who told her to ignore the considerable risks Alameda was running. In late 2021, for example, she told Bankman-Fried why it would be incredibly risky for Alameda to take out $3 billion in loans to invest in startups—it would further imbalance the hedge fund’s balance sheet. Even after she raised her concerns, Bankman-Fried said that he planned to go ahead and take out billions of dollars in loans, unveiling FTX Ventures in January 2022.
At one point, prosecutors asked Ellison about her ex’s appetite for risk. If there were a 50% chance that a coin flip would lead to the world being “twice as good,” she said, “he’d be happy to flip a coin if it turned up tails and the world was destroyed.”
This story was originally featured on Fortune.com
Chinese Bribes, Thai Prostitutes and an End to the Lies: Caroline Ellison’s Explosive Second Day of Testimony Against Sam Bankman-Fried
Sam Kessler, Helene Braun, Nikhilesh De, Elizabeth Napolitano
Updated Wed, October 11, 2023
Caroline Ellison, one of Sam Bankman-Fried’s top deputies and also his ex-girlfriend, testified Wednesday that she felt relieved when his crypto empire started to collapse because it meant she could stop lying.
She noted the CoinDesk scoop that undid the company, saying the crypto news site’s scoop was based on a balance sheet Alameda sent to lenders to mislead them into thinking the trading firm was on more solid financial footing than it really was – though the numbers were ugly enough to spark the collapse.
Ellison said Bankman-Fried instructed her to use FTX customer funds to repay Alameda’s lenders despite recognizing the risk.
She disclosed an unrelated bribery incident with Chinese officials to retrieve locked funds, highlighting the trust Bankman-Fried had in her.
The smoking gun
During her testimony, Ellison discussed the document that caused Bankman-Fried’s companies to collapse: the balance sheet CoinDesk’s Ian Allison reported on exclusively on Nov. 2, 2022.
She said that balance sheet was a version of the one Alameda sent to its lenders, designed to mislead them into thinking Alameda was healthier financially than it really was. On Wednesday, she called it a “dishonest” document.
But even the fudged numbers were ugly enough – brimming with FTX’s FTT token and other tokens closely related to Bankman-Fried – to raise questions about how viable Alameda and FTX were.
“It understated the true extent of Alameda’s risk, but it still showed that Alameda was in a fairly risky position,” Ellison said of the balance sheet.
CoinDesk has won three journalism awards for its reporting that set off the chain of events leading to FTX’s collapse.
‘Sam told me to’
Bankman-Fried told Caroline Ellison to continue repaying Alameda Research’s lenders with FTX customers’ money, which she did despite misgivings, she testified Wednesday.
In May 2022, the Luna crypto token’s decline led to a broader market downturn which caused several of Alameda’s creditors to call back loans that they’d made to the Bankman-Fried–founded trading fund, Ellison testified.
“I was in a constant state of dread,” she said. “I knew we would have to take the money from our [FTX] line of credit and that was money that could be called in at any time.”
Asked why that money was particularly risky, Ellison said it “was coming from FTX customers” who could try to withdraw it at any time.
Ellison said she grew increasingly worried throughout the spring of 2022 that Alameda’s reliance on FTX customer funds could lead to catastrophe for both firms.
“I was concerned that if everyone would find out, then everything would come crashing down,” Ellison said.
In spite of her concerns, Ellison testified that she continued to pay back lenders via Alameda’s FTX line of credit – which meant using FTX customer funds – “because Sam told me to.”
“I thought it was wrong,” she told prosecutors.
Bribing Chinese officials
In the most salacious bit of testimony Wednesday, Ellison said she and a handful of FTX and Alameda executives “paid a large bribe to Chinese officials” to secure funds that had been locked on Chinese exchanges. Neither FTX nor Alameda was involved in the investigation – which Ellison said involved an entity which at one point traded with Alameda, and was being probed for money laundering.
(Judge Lewis Kaplan, who is overseeing the Bankman-Fried trial, said the bribery anecdote was relayed to the jury to illustrate Bankman-Fried’s “trust and confidence” in Ellison and to speak to “motives” – not because Bankman-Fried was being charged with crimes in relation to alleged bribery. He did not mention that Bankman-Fried is currently scheduled to go on trial again next spring on bribery and other charges.)
After the FTX/Alameda team initially failed to secure the funds through negotiation with the Chinese government via lawyers, Ellison said they then tried – and again failed – to release the funds through a scheme involving the creation of fake exchange accounts using the identities of “Thai prostitutes.”
Ellison said Ryan Salame — another ex-FTX executive who’s pleaded guilty to charges — told her the names.
Finally, the funds were secured after Ellison made a payment of $100 million to a crypto account which, to her understanding, was tied in some way to Chinese government officials. Ellison recalled an incident when an employee protested against the plan in a meeting: Bankman-Fried grew increasingly annoyed with the employee, whose father was a Chinese government official, and eventually told her to "shut the f*** up."
In a private “State of Alameda” memo Ellison authored in November 2021, shortly after the payment was made, she included a bullet point titled “-150m from the thing?” under a section detailing “notable/idiosyncratic” financial events. The entry, she said, referenced the payment to Chinese officials: “I didn’t want to put in writing that we paid what I believed were bribes,” she testified.
Before breaking for lunch, prosecutors teased the jury with another memo authored by Ellison – a personal to-do list. It contained the item: “getting regulators to crack down on Binance.”
Binance is the world’s largest crypto exchange and, in the aftermath of FTX’s November 2022 collapse, U.S. regulators have accused it of wrongdoing.
“Sam said that he thought that was one of the best potential ways for FTX to increase market share,” Ellison said. “Regulators had been promising him this would happen for a while.”
Duping Genesis
Alameda had by mid-June 2022 borrowed 77% of the $13 billion of customer U.S. dollar deposits into FTX, according to an internal FTX spreadsheet introduced by prosecutors and authenticated by Ellison. Ellison said she asked FTX executives Gary Wang and Nishad Sing to gather the data for her when she grew concerned about the size of Alameda’s borrowings from FTX.
By this point in June, the data showed Alameda had borrowed 52% of all ETH deposits, 44% of USDT deposits and 25% of BTC deposits into FTX – as well as all of the Australian dollar and BRZ deposits into the exchange. (BRZ is an Ethereum token backed by Brazil’s currency, the real.)
When Genesis, a major Alameda lender, asked Ellison if she could provide documentation of Alameda’s financials, Ellison said she and Bankman-Fried worried that providing accurate financials would “show that Alameda was risky,” so the pair devised strategies to improve the look of Alameda’s financial position. (Genesis, now defunct, is a subsidiary of Digital Currency Group, which also owns CoinDesk.)
At one point, said Ellison, Bankman-Fried suggested Alameda could “put employees’ personal SRM tokens on its balance sheet” and take other measures to inflate the firm’s assets. SRM is a token on the Solana blockchain that Bankman-Fried had created and distributed, in part, to employees, according to earlier court testimony.
Ellison said that she and Bankman-Fried were still concerned that the new balance sheet they’d assembled would scare Genesis, so she went on to create “seven different, alternative balance sheets” for the pair to consider sending to the lender. Ellison walked through some of the balance sheets in court and detailed the different strategies she used in an attempt to hide Alameda’s risky financials.
Read more: Divisions in Sam Bankman-Fried’s Crypto Empire Blur on His Trading Titan Alameda’s Balance Sheet
“I didn’t want to be dishonest but was afraid to share the truth,” Ellison testified.
A princely sum
FTX considered raising capital from Saudi Arabian Prince and Prime Minister Mohammed Bin Salman, Ellison testified.
At that time, around June 2022, Alameda Research got into trouble after a broader decline in the crypto market that summer led several of the hedge fund’s biggest lenders to recall their loans to Alameda, Ellison said.
According to text messages the prosecution showed from June 2022, crypto lender Genesis had asked Alameda to pay back $500 million “in $250 million clips.” In addition to that, former crypto lending desk Celsius also asked for its loans to be repaid.
It was after Celsius’ request that Sam Bankman-Fried said he was considering selling FTX shares to Bin Salman to raise more money to repay Alameda’s lenders, Ellison said.
Someone who answered the phone at the Saudi consulate in the U.S. hung up after a CoinDesk reporter asked about Ellison’s testimony.
Moral ‘framework’
The former Alameda CEO also recalled how Bankman-Fried had said that lying and stealing money were permissible in his worldview.
“He didn’t think rules like ‘don’t lie’ [and] ‘don’t steal’ fit in that framework,” she said.
She recalled becoming more and more used to doing those things and sending false information to business partners or taking FTX customers’ money.
“Over time, it was something I became more comfortable with while working there,” she said.
Vague labeling
To avoid “legal trouble,” Ellison used vague language in an internal FTX document detailing how much Alameda had taken from the now-bankrupt crypto exchange, she testified.
Prosecutors introduced as exhibits spreadsheets created by Ellison detailing Alameda’s financial balances. The documents, according to Ellison, showed that Alameda had taken more than $10 billion from customers of FTX by May 2022.
Asked why this money was labeled “FTX borrows,” Ellison said she was following orders from Bankman-Fried. “I didn’t want to say explicitly ‘FTX customer money,’” she said on Wednesday.
Bankman-Fried “told us not to put things in writing that might get us in legal trouble.”
SBF’s valuable (lack of a) haircut
At one point, prosecuter Danielle Sassoon presented a picture of Bankman-Fried, asking Ellison to describe him. Ellison repled that it appeared he didn’t put much effort into his appearance. “He looked … sloppy,” she said. He “didn’t cut his hair often.”
And there was a reason for that, she recalled. The press and investors frequently took Bankman-Fried’s appearance as a sign that he was a typical Silicon Valley nerd who knew how to code but didn’t care much about fancy designer clothes or cars, which is exactly the image he wanted, Ellison recalled.
“[Sam] said he had gotten higher bonuses because of his hair,” she said. He had told his colleagues at his companies that his hair "had been very valuable [to his career]," she added.
It was also better for FTX’s image, Ellison recalled him telling her, which was also the reason behind the two of them switching their cars from “luxury company vehicles” to much cheaper brands like Toyota and Honda.
Blow to defense
Judge Kaplan dealt a blow to the defense this week when he denied multiple requests from Bankman-Fried’s lawyers to mention his charitable giving and the lack of clear U.S. crypto regulations. That crypto exchanges are not regulated like securities trading venues is “irrelevant” and only likely to confuse the jury, Kaplan said.
Kaplan also ruled that the Bankman-Fried jury would not be able to hear about the likelihood of recoveries from the FTX bankruptcy.
After releasing the jury on Wednesday – just before the court adjourned for the day – Kaplan also sided in favor of a government proposal to bar the defense from mentioning FTX's sizable stake in Anthropic, an AI startup whose valuation has surged in recent months. The defense may have hoped to use the investment to show the jury that FTX could have survived if Bankman-Fried's investments had been given a bit more time to play out.
Kaplan wasn't convinced, however. "This is like saying that if I break into the Federal Reserve Bank, make off with a million bucks, spend it all on Powerball tickets and happen to win, it was okay," the judge said.
Day one recap
Ellison began her testimony on Tuesday, and opened by saying she committed crimes with Bankman-Fried by sending balance sheets that misstated Alameda’s assets and liabilities to the crypto hedge fund’s lenders and by taking FTX customer funds and using them to repay debts or for investments, to the tune of around $10 billion.
Things fell apart in November 2022, Ellison said, when asked Tuesday what happened when customers tried to withdraw their funds.
“Initially FTX was able to process some withdrawals, but pretty soon it started running out of money. Alameda tried to send more money to FTX, but there wasn’t enough to cover all the customer claims,” she said. This was “because Alameda had taken it to make our own investments and to repay our lenders.”
Over the course of her first day of testimony, Ellison walked the jury through how Bankman-Fried, despite naming her (and for a spell, Sam Trabucco) as CEO of Alameda, still largely retained control over the firm’s decisions, and how he disregarded her advice on issues like whether to expand FTX’s investment portfolio.
Alameda’s inability to sell large portions of the FTT token came up. Selling the token would have depressed the price enough to dramatically hurt Alameda’s credit with lenders, she said.
“[Bankman-Fried] gave us a lot of instructions about FTT; at various points he instructed us to buy if there was a large amount of selling or if the price was going down too much,” she said.
Read all of CoinDesk’s coverage here.
Jack Schickler contributed reporting to this story.
Alameda Research allegedly paid Chinese officials around $150M to regain $1B worth of exchange accounts
Jacquelyn Melinek
Updated Wed, October 11, 2023
Image Credits: Michael M. Santiago / Getty Images
During the Sam Bankman-Fried trial on Wednesday, former Alameda Research CEO Caroline Ellison testified that the crypto trading firm paid Chinese officials to get their Alameda trading accounts on OKX and Huobi in China unlocked.
Judge Lewis Kaplan noted that the defendant is not charged in this case with bribery of Chinese officials, and the evidence was being offered for “limited purposes to display trust and confidence” as well as “motive” between Bankman-Fried and Ellison.
Bankman-Fried was CEO in 2020 when the accounts, valued around $1 billion, were frozen, Ellison testified. But in November 2021, Bankman-Fried said a colleague, David Ma, who was “Chinese and had connections,” found a way to get the accounts unfrozen, Ellison testified. (By the time the freeze was resolved, Ellison was co-CEO of Alameda, alongside Sam Trabucco.)
Bankman-Fried seemed slightly distracted, looking toward jurors rather than at the monitor, where a transcription of the testimony was being displayed in real time. His Poland Spring water bottle was half full and slightly crunched in from him gripping it and placing it down. Bankman-Fried’s parents sat nearby writing notes feverishly.
The accounts were reopened to Alameda after Ellison made about $100 million to $150 million in payments of “crypto transfers” to accounts, even though she “didn't know for certain who it was,” she said. It was later revealed that the accounts were to Chinese officials. Ellison said that Bankman-Fried and Trabucco told her via a Signal chat to make the payments.
Prior to the accounts reopening, Ellison said employees tried to come up with a number of “strategies” to open the accounts, like getting their lawyers to contact the exchanges and government officials. They even considered getting Thai prostitutes to open accounts on the exchanges, in hopes that they could transfer funds to them, she testified, though these efforts didn’t work.
An Alameda trader who was called “Handi” quit in early January 2022 because she disagreed with the decision to pay bribes to Chinese officials, as her father was one himself. Prior to her transfer being complete, she argued with Bankman-Fried about it; during that argument, he allegedly told her to “shut the fuck up,” Ellison testified.
On February 2, 2022, about a month after Handi quit, Trabucco wrote in a Signal chat, “Did Handi’s father immediately turn us in or something?” Bankman-Fried replied, “lol.”
Ellison shared a list with prosecutors, in which she wrote things to consider, including one note that said “150m from the thing?” referring to the money transferred to regain the accounts.
When asked in examination why she didn’t put in writing that the $150 million was a payment to China, Ellison said she “didn’t want to put in writing we paid to get the accounts unlocked,” because she “thought [it] might leak and be used against [Alameda] in a court case.”
Mark Cohen, Bankman-Fried’s main lawyer, tried to strike Ellison’s statement about not wanting the payments in writing, but it was overruled. Cohen tried again and Kaplan replied curtly: “Well counsel, when I overrule, that’s the end of discussion.”
Caroline Ellison Says ‘Sam Was the One’ Who Caused FTX Collapse
Chris Dolmetsch, Yueqi Yang and Bob Van Voris
Wed, October 11, 2023
(Bloomberg) -- In June 2022, amid the broader crypto meltdown, Caroline Ellison and FTX co-founder Sam Bankman-Fried were looking at a massive hole in Alameda Research’s balance sheet.
FTX’s affiliated hedge fund had borrowed billions of dollars from the cryptocurrency exchange’s deposits. If FTX customers or potential lenders caught wind of it, Ellison, Alameda’s chief executive officer, feared it would “all come crashing down.” But Bankman-Fried had a solution: create new balance sheets. Ellison came up with seven.
The alternative balance sheets were one of the ways Bankman-Fried asked her to lie in his futile efforts to preserve his crypto empire, Ellison said during her second day on the stand as the star witness in his fraud trial in Manhattan federal court. Towards the end of her testimony, Ellison fought back tears as she recalled her feelings when Alameda’s $14 billion debt to FTX finally doomed both companies.
“That was overall the worst week of my life,” Ellison testified Wednesday about the exchange’s November 2022 collapse. Though she “felt indescribably bad about people who were harmed,” she said she was also relieved.
“I felt a sense of relief that I didn’t have to lie anymore, that I could start taking responsibility for what I had done,” said Ellison, who pleaded guilty to fraud and agreed to cooperate with prosecutors barely a month after FTX’s bankruptcy.
Effective Altruism
Wednesday’s testimony by Ellison, who is also Bankman-Fried’s ex-girlfriend, directly took on one of his main defense arguments: that she, not he, was in charge of Alameda when it borrowed billions from FTX. For months, Bankman-Fried has suggested that Ellison was primarily responsible for Alameda’s borrowing and that he only failed to supervise her.
“I mean, I absolutely could have, should have done things differently, and I could have hedged things earlier in the year,” Ellison testified. “But Sam was the one who chose to make all these investments that put us in a leveraged position in the first place.”
She also cast in a new light Bankman-Fried’s well-publicized adherence to the Effective Altruism movement, which encourages followers to make as much money as possible to use for the betterment of society. During FTX’s better days, Bankman-Fried was a well-known donor to the Democratic Party and other causes. Ellison noted that he initially bought luxury cars but then switched to a Toyota Corolla, which he thought would be “better for his image.”
Ellison, who followed Effective Altruism, testified Bankman-Fried’s beliefs were such that even actions like lying and stealing could be justified in pursuit of the greater good. She said Bankman-Fried’s outlook influenced her as well.
“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 testified.
Bankman-Fried’s lawyers could begin their cross-examination on Thursday.
Under questioning by Assistant US Attorney Danielle Sassoon, Ellison detailed the growing sense of crisis permeating the crypto industry through the spring and summer of 2022, following the collapse of Terraform Labs’s stablecoin. Ellison said Alameda had borrowed $13 billion from FTX by mid-June 2022.
“I was in a state of dread,” she said of that time. “I was kind of thinking and imagining every day about what might happen if people tried to withdraw too much money at one time.” She said she imagined FTX customers, lenders and everyone Alameda worked with “would get hurt by this.”
It was in that context that Bankman-Fried asked her to create false balance sheets for Alameda that would conceal the scale of Alameda’s exposure to FTX from lenders like Genesis.
“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,” Ellison said.
In August 2022, she said Bankman-Fried started blaming her for the worsening situation.
“Sam started saying Alameda should have hedged way more earlier in the year, that was a big mistake, that was my fault, and I was largely responsible for the financial situation,” Ellison testified. “I got upset. I started crying.”
She said that she probably did make mistakes but said Bankman-Fried was more to blame for the mess they found themselves in.
In describing her growing concerns, Ellison echoed earlier testimony by other prosecution witnesses, including FTX co-founder Gary Wang, who said Bankman-Fried directed him to alter the exchange’s backend code so that Alameda could borrow unlimited amounts. Wang also pleaded guilty and agreed to cooperate in December.
Wang and Ellison were often in the same group Signal chats with Bankman-Fried and other FTX executives, she said. That continued into fall 2022, by which time Ellison said she and Bankman-Fried were no longer a couple.
“We had broken up a few months prior, so I was trying to avoid spending much time with him in a social context and having one-on-one conversations with him,” she testified.
Ellison said Bankman-Fried directed that they should use the disappearing message setting on the Signal app. He also asked them to use the “New York Times test” and imagine their text as a newspaper headline before sending it.
Saudi Lifeline
She and Bankman-Fried discussed other potential lifelines for FTX. On one occasion, he raised the possibility of asking Saudi Arabia’s Crown Prince Mohammed bin Salman to buy shares in FTX. Financier Anthony Scaramucci arranged a dinner between Bankman-Fried and the Saudi ruler in late October when the former was visiting Riyadh for a conference. MBS has never been publicly listed as an FTX investor.
It wasn’t the first time that Bankman-Fried sought the help of a foreign government, Ellison testified. She said the two had several discussions about a “large bribe” they paid to Chinese officials in November 2021 to unfreeze $1 billion in Alameda funds that had been caught up in a crypto crackdown in that country.
Ellison said FTX executives explored various ways to access the funds, but none proved to be successful. She said Bankman-Fried grew frustrated over the issue, at one point yelling at a trader who objected to the idea of bribery to “shut the f**k up” during a meeting.
Eventually, she said they decided they had to pay the officials. Prosecutors added a bribery charge to Bankman-Fried’s indictment in March but later separated it to be tried separately after the original counts.
Ellison said she lied to other employees about the bribe.
“I didn’t want the facts of our crimes to get out,” she said.
The case is US v. Bankman-Fried, 22-cr-673, US District Court, Southern District of New York (Manhattan).
--With assistance from Hannah Miller and Emily Nicolle.
Emails show how Bankman-Fried toyed with Paradigm VCs, who had misgivings but gave him nearly $300 million anyway
Jeff John Roberts
Wed, October 11, 2023
The ongoing fraud trial of Sam Bankman-Fried in New York has produced some remarkable witness testimony—including from his ex-girlfriend Caroline Ellison—but also new documents that provide an illuminating, and sometimes cringeworthy, look at how the FTX founder manipulated venture capital investors.
One of the more remarkable exhibits to emerge at trial is an email exchange between Bankman-Fried and the crypto fund Paradigm, which invested $278 million in the failed exchange—money that the fund has since "marked to zero," according to partner Matt Huang, who testified last week.
The emails are from April 2021, several months before FTX announced a $900 million Series B funding round that eventually valued the company at $18 billion. In a series of curt messages, Bankman-Fried suggests the Paradigm might be responsible for "word on the street" rumors that his exchange should be valued at $12 billion:
Bankman-Fried's message then goes on to pressure the Paradigm team by saying he is happy not to take their money, sniffing that "it's totally fine if you want a $12b val, but we don't, and we would rather just not raise, which is totally fine with us! Also lots of others are happy with 20b."
He further adds that FTX's hoard of in-house FTT tokens—which today are nearly worthless—means the exchange should be worth even more, and concludes the email by lamenting that he's unsure "how we as a community got to where we are—we should be looking to work together in the crypto space, not fight each other."
In response, Huang and another Paradigm investor, Arjun Balaji, reassure Bankman-Fried they are not behind rumors that FTX should be valued at $12 billion, and that any difference of opinion is due to their desire to maximize success. This includes Huang telling him that the consensus is "everyone loves you, SBF + the core FTX platform."
The most ironic part of the email exchange, however, is when Balaji lays out the concerns that made Paradigm reluctant to immediately go along with Bankman-Fried's proposed $20 billion valuation:
As the screenshot above shows, Balaji is worried that FTX lacks a board or any of the oversight that is typically attached to a startup of its size, and that the entire operation is run entirely by Bankman-Fried. Using corporate jargon, he also frets over potential "value leakage" arising from the FTT token and from the unusual overlap between FTX and Bankman-Fried's hedge fund, Alameda Research.
These concerns would turn out to be entirely prescient, as, after FTX imploded, it turned out that Alameda had been raiding customer money from the exchange while Bankman-Fried was using the in-house funny-money FTT tokens to prop up the company's balance sheet.
Unfortunately for Paradigm, the firm did not heed its initial misgivings, and, in what appears to have been a case of pure venture capital FOMO, instead pressed ahead all the same with its Series B investment. It went on to invest millions more only six months later in a follow-on round.
The exchange between Paradigm and Bankman-Fried also contains an additional nugget of interesting information in the form of the subject line of the emails, which is "Re: rob sarver."
The subject appears to refer to Robert Sarver, the onetime owner of the Phoenix Suns, and coincides with a time when Bankman-Fried was preparing to make a number of large investments into sports-related endorsements—including a $135 million naming rights deal with the Miami Heat.
In the email exchange, Huang tells Bankman-Fried he spoke to Sarver who "Said all good things" and wishes the pair luck on collaborating. Bankman-Fried replies that he hopes a deal with Sarver will come to fruition.
No such deal ever materialized, however, as Sarver would soon after confront allegations of racism and misogyny and go on to sell the Suns—and the WBNA's Phoenix Mercury—shortly after FTX collapsed.
This story was originally featured on Fortune.com
Caroline Ellison Testifies That SBF's Strange Philosophy Justified Lying and Stealing
Noor Al-Sibai
Wed, October 11, 2023
Blurred Lines
In her latest courtroom salvo, Sam Bankman-Fried's former colleague and romantic partner Caroline Ellison testified that her ex had what seems to be a pretty skewed moral compass.
As transcribed by Bloomberg, the latest remarks from Ellison, the former CEO of FTX sister firm and alleged slush fund Alameda Research, show not only Bankman-Fried's philosophical tolerance for dishonesty, but his purported penchant for pushing others into it as well.
SBF was, as Ellison put it, a "utilitarian" who didn't have much affinity for rules that prohibited lying and theft — a philosophy that ties in neatly with the Effective Altruism movement that both ascribed to.
Prior to the arduous crash of the FTX crypto exchange last fall and its stunning aftermath, Bankman-Fried, then a billionaire, was considered the poster boy for Effective Altruism, which is centered on making as much money as possible so that it can be used to help make the world a better place.
Though he admitted nearly a year ago that the "ethics stuff" was "mostly a front," Bankman-Fried's utilitarian thinking nevertheless seems, at least per his ex-girlfriend's reckoning, to have played a major role in the way he ran FTX.
"He thought the only moral rule that mattered," Ellison said in court today, "was doing whatever would maximize the utility."
Spittin'
As the 28-year-old said in her testimony, that attitude eventually rubbed off onto her and made her "more willing to do things like lie and steal."
"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," Ellison added, "but over time it was something I felt more comfortable with."
These remarks made during the former Alameda CEO's second day of testimony against Bankman-Fried offer another look into the modus operandi and self-regard of the disgraced crypto scion as more information comes out about him in court, in the media, and in a bombshell new SBF biography by journalist Michael Lewis that dropped just in time for the trial to begin.
During her previous appearance before the court, Ellison said Bankman-Fried "directed" her to commit the financial crimes she pleaded guilty to at the end of 2022, which included multiple counts of fraud and conspiracy.
"I sent balance sheets at the direction of Sam [Bankman-Fried] that made Alameda's balances look less risky to investors," she said during her October 10 testimony, per transcription from the crypto site Coindesk.
We've long known that Ellison's testimony against her ex-boyfriend and alleged co-conspirator was going to include loads of dirty laundry, but the bars she's dropping are nevertheless keeping us riveted as the case barrels on.
More on SBF: Alameda Secretly Had Value of Negative $2.7 Billion, Insider Tells Court
Sam Kessler, Helene Braun, Nikhilesh De, Elizabeth Napolitano
Updated Wed, October 11, 2023
Caroline Ellison, one of Sam Bankman-Fried’s top deputies and also his ex-girlfriend, testified Wednesday that she felt relieved when his crypto empire started to collapse because it meant she could stop lying.
She noted the CoinDesk scoop that undid the company, saying the crypto news site’s scoop was based on a balance sheet Alameda sent to lenders to mislead them into thinking the trading firm was on more solid financial footing than it really was – though the numbers were ugly enough to spark the collapse.
Ellison said Bankman-Fried instructed her to use FTX customer funds to repay Alameda’s lenders despite recognizing the risk.
She disclosed an unrelated bribery incident with Chinese officials to retrieve locked funds, highlighting the trust Bankman-Fried had in her.
Caroline Ellison wept on the witness stand near the end of her second day testifying against her former boss and ex-boyfriend, fallen cryptocurrency mogul Sam Bankman-Fried.
The diminutive and soft-spoken former CEO of Alameda Research described the unraveling last November of her hedge fund and its sister company, the FTX exchange, and the “relief” she felt as revelations about their fraud became public.
“I felt a sense of relief that I didn’t have to lie anymore,” Ellison testified.
Her voice trembled and cracked as she recalled one particular text message exchange between her and Bankman-Fried during what she described as the “overall worst week of my life."
"I felt indescribably bad about all the ... people that lost their jobs ... [and the] people that trusted us that we had betrayed," Ellison told the packed courtroom as she reached for a tissue.
Bankman-Fried, the defendant, did not look up as she wept, but kept typing on his court-issued laptop.
It was the second day of testimony for Ellison, the former Wall Street trader and star witness in the government’s criminal fraud case against Bankman-Fried.
The diminutive and soft-spoken former CEO of Alameda Research described the unraveling last November of her hedge fund and its sister company, the FTX exchange, and the “relief” she felt as revelations about their fraud became public.
“I felt a sense of relief that I didn’t have to lie anymore,” Ellison testified.
Her voice trembled and cracked as she recalled one particular text message exchange between her and Bankman-Fried during what she described as the “overall worst week of my life."
"I felt indescribably bad about all the ... people that lost their jobs ... [and the] people that trusted us that we had betrayed," Ellison told the packed courtroom as she reached for a tissue.
Bankman-Fried, the defendant, did not look up as she wept, but kept typing on his court-issued laptop.
It was the second day of testimony for Ellison, the former Wall Street trader and star witness in the government’s criminal fraud case against Bankman-Fried.
The smoking gun
During her testimony, Ellison discussed the document that caused Bankman-Fried’s companies to collapse: the balance sheet CoinDesk’s Ian Allison reported on exclusively on Nov. 2, 2022.
She said that balance sheet was a version of the one Alameda sent to its lenders, designed to mislead them into thinking Alameda was healthier financially than it really was. On Wednesday, she called it a “dishonest” document.
But even the fudged numbers were ugly enough – brimming with FTX’s FTT token and other tokens closely related to Bankman-Fried – to raise questions about how viable Alameda and FTX were.
“It understated the true extent of Alameda’s risk, but it still showed that Alameda was in a fairly risky position,” Ellison said of the balance sheet.
CoinDesk has won three journalism awards for its reporting that set off the chain of events leading to FTX’s collapse.
‘Sam told me to’
Bankman-Fried told Caroline Ellison to continue repaying Alameda Research’s lenders with FTX customers’ money, which she did despite misgivings, she testified Wednesday.
In May 2022, the Luna crypto token’s decline led to a broader market downturn which caused several of Alameda’s creditors to call back loans that they’d made to the Bankman-Fried–founded trading fund, Ellison testified.
“I was in a constant state of dread,” she said. “I knew we would have to take the money from our [FTX] line of credit and that was money that could be called in at any time.”
Asked why that money was particularly risky, Ellison said it “was coming from FTX customers” who could try to withdraw it at any time.
Ellison said she grew increasingly worried throughout the spring of 2022 that Alameda’s reliance on FTX customer funds could lead to catastrophe for both firms.
“I was concerned that if everyone would find out, then everything would come crashing down,” Ellison said.
In spite of her concerns, Ellison testified that she continued to pay back lenders via Alameda’s FTX line of credit – which meant using FTX customer funds – “because Sam told me to.”
“I thought it was wrong,” she told prosecutors.
Bribing Chinese officials
In the most salacious bit of testimony Wednesday, Ellison said she and a handful of FTX and Alameda executives “paid a large bribe to Chinese officials” to secure funds that had been locked on Chinese exchanges. Neither FTX nor Alameda was involved in the investigation – which Ellison said involved an entity which at one point traded with Alameda, and was being probed for money laundering.
(Judge Lewis Kaplan, who is overseeing the Bankman-Fried trial, said the bribery anecdote was relayed to the jury to illustrate Bankman-Fried’s “trust and confidence” in Ellison and to speak to “motives” – not because Bankman-Fried was being charged with crimes in relation to alleged bribery. He did not mention that Bankman-Fried is currently scheduled to go on trial again next spring on bribery and other charges.)
After the FTX/Alameda team initially failed to secure the funds through negotiation with the Chinese government via lawyers, Ellison said they then tried – and again failed – to release the funds through a scheme involving the creation of fake exchange accounts using the identities of “Thai prostitutes.”
Ellison said Ryan Salame — another ex-FTX executive who’s pleaded guilty to charges — told her the names.
Finally, the funds were secured after Ellison made a payment of $100 million to a crypto account which, to her understanding, was tied in some way to Chinese government officials. Ellison recalled an incident when an employee protested against the plan in a meeting: Bankman-Fried grew increasingly annoyed with the employee, whose father was a Chinese government official, and eventually told her to "shut the f*** up."
In a private “State of Alameda” memo Ellison authored in November 2021, shortly after the payment was made, she included a bullet point titled “-150m from the thing?” under a section detailing “notable/idiosyncratic” financial events. The entry, she said, referenced the payment to Chinese officials: “I didn’t want to put in writing that we paid what I believed were bribes,” she testified.
Before breaking for lunch, prosecutors teased the jury with another memo authored by Ellison – a personal to-do list. It contained the item: “getting regulators to crack down on Binance.”
Binance is the world’s largest crypto exchange and, in the aftermath of FTX’s November 2022 collapse, U.S. regulators have accused it of wrongdoing.
“Sam said that he thought that was one of the best potential ways for FTX to increase market share,” Ellison said. “Regulators had been promising him this would happen for a while.”
Duping Genesis
Alameda had by mid-June 2022 borrowed 77% of the $13 billion of customer U.S. dollar deposits into FTX, according to an internal FTX spreadsheet introduced by prosecutors and authenticated by Ellison. Ellison said she asked FTX executives Gary Wang and Nishad Sing to gather the data for her when she grew concerned about the size of Alameda’s borrowings from FTX.
By this point in June, the data showed Alameda had borrowed 52% of all ETH deposits, 44% of USDT deposits and 25% of BTC deposits into FTX – as well as all of the Australian dollar and BRZ deposits into the exchange. (BRZ is an Ethereum token backed by Brazil’s currency, the real.)
When Genesis, a major Alameda lender, asked Ellison if she could provide documentation of Alameda’s financials, Ellison said she and Bankman-Fried worried that providing accurate financials would “show that Alameda was risky,” so the pair devised strategies to improve the look of Alameda’s financial position. (Genesis, now defunct, is a subsidiary of Digital Currency Group, which also owns CoinDesk.)
At one point, said Ellison, Bankman-Fried suggested Alameda could “put employees’ personal SRM tokens on its balance sheet” and take other measures to inflate the firm’s assets. SRM is a token on the Solana blockchain that Bankman-Fried had created and distributed, in part, to employees, according to earlier court testimony.
Ellison said that she and Bankman-Fried were still concerned that the new balance sheet they’d assembled would scare Genesis, so she went on to create “seven different, alternative balance sheets” for the pair to consider sending to the lender. Ellison walked through some of the balance sheets in court and detailed the different strategies she used in an attempt to hide Alameda’s risky financials.
Read more: Divisions in Sam Bankman-Fried’s Crypto Empire Blur on His Trading Titan Alameda’s Balance Sheet
“I didn’t want to be dishonest but was afraid to share the truth,” Ellison testified.
A princely sum
FTX considered raising capital from Saudi Arabian Prince and Prime Minister Mohammed Bin Salman, Ellison testified.
At that time, around June 2022, Alameda Research got into trouble after a broader decline in the crypto market that summer led several of the hedge fund’s biggest lenders to recall their loans to Alameda, Ellison said.
According to text messages the prosecution showed from June 2022, crypto lender Genesis had asked Alameda to pay back $500 million “in $250 million clips.” In addition to that, former crypto lending desk Celsius also asked for its loans to be repaid.
It was after Celsius’ request that Sam Bankman-Fried said he was considering selling FTX shares to Bin Salman to raise more money to repay Alameda’s lenders, Ellison said.
Someone who answered the phone at the Saudi consulate in the U.S. hung up after a CoinDesk reporter asked about Ellison’s testimony.
Moral ‘framework’
The former Alameda CEO also recalled how Bankman-Fried had said that lying and stealing money were permissible in his worldview.
“He didn’t think rules like ‘don’t lie’ [and] ‘don’t steal’ fit in that framework,” she said.
She recalled becoming more and more used to doing those things and sending false information to business partners or taking FTX customers’ money.
“Over time, it was something I became more comfortable with while working there,” she said.
Vague labeling
To avoid “legal trouble,” Ellison used vague language in an internal FTX document detailing how much Alameda had taken from the now-bankrupt crypto exchange, she testified.
Prosecutors introduced as exhibits spreadsheets created by Ellison detailing Alameda’s financial balances. The documents, according to Ellison, showed that Alameda had taken more than $10 billion from customers of FTX by May 2022.
Asked why this money was labeled “FTX borrows,” Ellison said she was following orders from Bankman-Fried. “I didn’t want to say explicitly ‘FTX customer money,’” she said on Wednesday.
Bankman-Fried “told us not to put things in writing that might get us in legal trouble.”
SBF’s valuable (lack of a) haircut
At one point, prosecuter Danielle Sassoon presented a picture of Bankman-Fried, asking Ellison to describe him. Ellison repled that it appeared he didn’t put much effort into his appearance. “He looked … sloppy,” she said. He “didn’t cut his hair often.”
And there was a reason for that, she recalled. The press and investors frequently took Bankman-Fried’s appearance as a sign that he was a typical Silicon Valley nerd who knew how to code but didn’t care much about fancy designer clothes or cars, which is exactly the image he wanted, Ellison recalled.
“[Sam] said he had gotten higher bonuses because of his hair,” she said. He had told his colleagues at his companies that his hair "had been very valuable [to his career]," she added.
It was also better for FTX’s image, Ellison recalled him telling her, which was also the reason behind the two of them switching their cars from “luxury company vehicles” to much cheaper brands like Toyota and Honda.
Blow to defense
Judge Kaplan dealt a blow to the defense this week when he denied multiple requests from Bankman-Fried’s lawyers to mention his charitable giving and the lack of clear U.S. crypto regulations. That crypto exchanges are not regulated like securities trading venues is “irrelevant” and only likely to confuse the jury, Kaplan said.
Kaplan also ruled that the Bankman-Fried jury would not be able to hear about the likelihood of recoveries from the FTX bankruptcy.
After releasing the jury on Wednesday – just before the court adjourned for the day – Kaplan also sided in favor of a government proposal to bar the defense from mentioning FTX's sizable stake in Anthropic, an AI startup whose valuation has surged in recent months. The defense may have hoped to use the investment to show the jury that FTX could have survived if Bankman-Fried's investments had been given a bit more time to play out.
Kaplan wasn't convinced, however. "This is like saying that if I break into the Federal Reserve Bank, make off with a million bucks, spend it all on Powerball tickets and happen to win, it was okay," the judge said.
Day one recap
Ellison began her testimony on Tuesday, and opened by saying she committed crimes with Bankman-Fried by sending balance sheets that misstated Alameda’s assets and liabilities to the crypto hedge fund’s lenders and by taking FTX customer funds and using them to repay debts or for investments, to the tune of around $10 billion.
Things fell apart in November 2022, Ellison said, when asked Tuesday what happened when customers tried to withdraw their funds.
“Initially FTX was able to process some withdrawals, but pretty soon it started running out of money. Alameda tried to send more money to FTX, but there wasn’t enough to cover all the customer claims,” she said. This was “because Alameda had taken it to make our own investments and to repay our lenders.”
Over the course of her first day of testimony, Ellison walked the jury through how Bankman-Fried, despite naming her (and for a spell, Sam Trabucco) as CEO of Alameda, still largely retained control over the firm’s decisions, and how he disregarded her advice on issues like whether to expand FTX’s investment portfolio.
Alameda’s inability to sell large portions of the FTT token came up. Selling the token would have depressed the price enough to dramatically hurt Alameda’s credit with lenders, she said.
“[Bankman-Fried] gave us a lot of instructions about FTT; at various points he instructed us to buy if there was a large amount of selling or if the price was going down too much,” she said.
Read all of CoinDesk’s coverage here.
Jack Schickler contributed reporting to this story.
Alameda Research allegedly paid Chinese officials around $150M to regain $1B worth of exchange accounts
Jacquelyn Melinek
Updated Wed, October 11, 2023
Image Credits: Michael M. Santiago / Getty Images
During the Sam Bankman-Fried trial on Wednesday, former Alameda Research CEO Caroline Ellison testified that the crypto trading firm paid Chinese officials to get their Alameda trading accounts on OKX and Huobi in China unlocked.
Judge Lewis Kaplan noted that the defendant is not charged in this case with bribery of Chinese officials, and the evidence was being offered for “limited purposes to display trust and confidence” as well as “motive” between Bankman-Fried and Ellison.
Bankman-Fried was CEO in 2020 when the accounts, valued around $1 billion, were frozen, Ellison testified. But in November 2021, Bankman-Fried said a colleague, David Ma, who was “Chinese and had connections,” found a way to get the accounts unfrozen, Ellison testified. (By the time the freeze was resolved, Ellison was co-CEO of Alameda, alongside Sam Trabucco.)
Bankman-Fried seemed slightly distracted, looking toward jurors rather than at the monitor, where a transcription of the testimony was being displayed in real time. His Poland Spring water bottle was half full and slightly crunched in from him gripping it and placing it down. Bankman-Fried’s parents sat nearby writing notes feverishly.
The accounts were reopened to Alameda after Ellison made about $100 million to $150 million in payments of “crypto transfers” to accounts, even though she “didn't know for certain who it was,” she said. It was later revealed that the accounts were to Chinese officials. Ellison said that Bankman-Fried and Trabucco told her via a Signal chat to make the payments.
Prior to the accounts reopening, Ellison said employees tried to come up with a number of “strategies” to open the accounts, like getting their lawyers to contact the exchanges and government officials. They even considered getting Thai prostitutes to open accounts on the exchanges, in hopes that they could transfer funds to them, she testified, though these efforts didn’t work.
An Alameda trader who was called “Handi” quit in early January 2022 because she disagreed with the decision to pay bribes to Chinese officials, as her father was one himself. Prior to her transfer being complete, she argued with Bankman-Fried about it; during that argument, he allegedly told her to “shut the fuck up,” Ellison testified.
On February 2, 2022, about a month after Handi quit, Trabucco wrote in a Signal chat, “Did Handi’s father immediately turn us in or something?” Bankman-Fried replied, “lol.”
Ellison shared a list with prosecutors, in which she wrote things to consider, including one note that said “150m from the thing?” referring to the money transferred to regain the accounts.
When asked in examination why she didn’t put in writing that the $150 million was a payment to China, Ellison said she “didn’t want to put in writing we paid to get the accounts unlocked,” because she “thought [it] might leak and be used against [Alameda] in a court case.”
Mark Cohen, Bankman-Fried’s main lawyer, tried to strike Ellison’s statement about not wanting the payments in writing, but it was overruled. Cohen tried again and Kaplan replied curtly: “Well counsel, when I overrule, that’s the end of discussion.”
Caroline Ellison Says ‘Sam Was the One’ Who Caused FTX Collapse
Chris Dolmetsch, Yueqi Yang and Bob Van Voris
Wed, October 11, 2023
(Bloomberg) -- In June 2022, amid the broader crypto meltdown, Caroline Ellison and FTX co-founder Sam Bankman-Fried were looking at a massive hole in Alameda Research’s balance sheet.
FTX’s affiliated hedge fund had borrowed billions of dollars from the cryptocurrency exchange’s deposits. If FTX customers or potential lenders caught wind of it, Ellison, Alameda’s chief executive officer, feared it would “all come crashing down.” But Bankman-Fried had a solution: create new balance sheets. Ellison came up with seven.
The alternative balance sheets were one of the ways Bankman-Fried asked her to lie in his futile efforts to preserve his crypto empire, Ellison said during her second day on the stand as the star witness in his fraud trial in Manhattan federal court. Towards the end of her testimony, Ellison fought back tears as she recalled her feelings when Alameda’s $14 billion debt to FTX finally doomed both companies.
“That was overall the worst week of my life,” Ellison testified Wednesday about the exchange’s November 2022 collapse. Though she “felt indescribably bad about people who were harmed,” she said she was also relieved.
“I felt a sense of relief that I didn’t have to lie anymore, that I could start taking responsibility for what I had done,” said Ellison, who pleaded guilty to fraud and agreed to cooperate with prosecutors barely a month after FTX’s bankruptcy.
Effective Altruism
Wednesday’s testimony by Ellison, who is also Bankman-Fried’s ex-girlfriend, directly took on one of his main defense arguments: that she, not he, was in charge of Alameda when it borrowed billions from FTX. For months, Bankman-Fried has suggested that Ellison was primarily responsible for Alameda’s borrowing and that he only failed to supervise her.
“I mean, I absolutely could have, should have done things differently, and I could have hedged things earlier in the year,” Ellison testified. “But Sam was the one who chose to make all these investments that put us in a leveraged position in the first place.”
She also cast in a new light Bankman-Fried’s well-publicized adherence to the Effective Altruism movement, which encourages followers to make as much money as possible to use for the betterment of society. During FTX’s better days, Bankman-Fried was a well-known donor to the Democratic Party and other causes. Ellison noted that he initially bought luxury cars but then switched to a Toyota Corolla, which he thought would be “better for his image.”
Ellison, who followed Effective Altruism, testified Bankman-Fried’s beliefs were such that even actions like lying and stealing could be justified in pursuit of the greater good. She said Bankman-Fried’s outlook influenced her as well.
“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 testified.
Bankman-Fried’s lawyers could begin their cross-examination on Thursday.
Under questioning by Assistant US Attorney Danielle Sassoon, Ellison detailed the growing sense of crisis permeating the crypto industry through the spring and summer of 2022, following the collapse of Terraform Labs’s stablecoin. Ellison said Alameda had borrowed $13 billion from FTX by mid-June 2022.
“I was in a state of dread,” she said of that time. “I was kind of thinking and imagining every day about what might happen if people tried to withdraw too much money at one time.” She said she imagined FTX customers, lenders and everyone Alameda worked with “would get hurt by this.”
It was in that context that Bankman-Fried asked her to create false balance sheets for Alameda that would conceal the scale of Alameda’s exposure to FTX from lenders like Genesis.
“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,” Ellison said.
In August 2022, she said Bankman-Fried started blaming her for the worsening situation.
“Sam started saying Alameda should have hedged way more earlier in the year, that was a big mistake, that was my fault, and I was largely responsible for the financial situation,” Ellison testified. “I got upset. I started crying.”
She said that she probably did make mistakes but said Bankman-Fried was more to blame for the mess they found themselves in.
In describing her growing concerns, Ellison echoed earlier testimony by other prosecution witnesses, including FTX co-founder Gary Wang, who said Bankman-Fried directed him to alter the exchange’s backend code so that Alameda could borrow unlimited amounts. Wang also pleaded guilty and agreed to cooperate in December.
Wang and Ellison were often in the same group Signal chats with Bankman-Fried and other FTX executives, she said. That continued into fall 2022, by which time Ellison said she and Bankman-Fried were no longer a couple.
“We had broken up a few months prior, so I was trying to avoid spending much time with him in a social context and having one-on-one conversations with him,” she testified.
Ellison said Bankman-Fried directed that they should use the disappearing message setting on the Signal app. He also asked them to use the “New York Times test” and imagine their text as a newspaper headline before sending it.
Saudi Lifeline
She and Bankman-Fried discussed other potential lifelines for FTX. On one occasion, he raised the possibility of asking Saudi Arabia’s Crown Prince Mohammed bin Salman to buy shares in FTX. Financier Anthony Scaramucci arranged a dinner between Bankman-Fried and the Saudi ruler in late October when the former was visiting Riyadh for a conference. MBS has never been publicly listed as an FTX investor.
It wasn’t the first time that Bankman-Fried sought the help of a foreign government, Ellison testified. She said the two had several discussions about a “large bribe” they paid to Chinese officials in November 2021 to unfreeze $1 billion in Alameda funds that had been caught up in a crypto crackdown in that country.
Ellison said FTX executives explored various ways to access the funds, but none proved to be successful. She said Bankman-Fried grew frustrated over the issue, at one point yelling at a trader who objected to the idea of bribery to “shut the f**k up” during a meeting.
Eventually, she said they decided they had to pay the officials. Prosecutors added a bribery charge to Bankman-Fried’s indictment in March but later separated it to be tried separately after the original counts.
Ellison said she lied to other employees about the bribe.
“I didn’t want the facts of our crimes to get out,” she said.
The case is US v. Bankman-Fried, 22-cr-673, US District Court, Southern District of New York (Manhattan).
--With assistance from Hannah Miller and Emily Nicolle.
Emails show how Bankman-Fried toyed with Paradigm VCs, who had misgivings but gave him nearly $300 million anyway
Jeff John Roberts
Wed, October 11, 2023
The ongoing fraud trial of Sam Bankman-Fried in New York has produced some remarkable witness testimony—including from his ex-girlfriend Caroline Ellison—but also new documents that provide an illuminating, and sometimes cringeworthy, look at how the FTX founder manipulated venture capital investors.
One of the more remarkable exhibits to emerge at trial is an email exchange between Bankman-Fried and the crypto fund Paradigm, which invested $278 million in the failed exchange—money that the fund has since "marked to zero," according to partner Matt Huang, who testified last week.
The emails are from April 2021, several months before FTX announced a $900 million Series B funding round that eventually valued the company at $18 billion. In a series of curt messages, Bankman-Fried suggests the Paradigm might be responsible for "word on the street" rumors that his exchange should be valued at $12 billion:
Bankman-Fried's message then goes on to pressure the Paradigm team by saying he is happy not to take their money, sniffing that "it's totally fine if you want a $12b val, but we don't, and we would rather just not raise, which is totally fine with us! Also lots of others are happy with 20b."
He further adds that FTX's hoard of in-house FTT tokens—which today are nearly worthless—means the exchange should be worth even more, and concludes the email by lamenting that he's unsure "how we as a community got to where we are—we should be looking to work together in the crypto space, not fight each other."
In response, Huang and another Paradigm investor, Arjun Balaji, reassure Bankman-Fried they are not behind rumors that FTX should be valued at $12 billion, and that any difference of opinion is due to their desire to maximize success. This includes Huang telling him that the consensus is "everyone loves you, SBF + the core FTX platform."
The most ironic part of the email exchange, however, is when Balaji lays out the concerns that made Paradigm reluctant to immediately go along with Bankman-Fried's proposed $20 billion valuation:
As the screenshot above shows, Balaji is worried that FTX lacks a board or any of the oversight that is typically attached to a startup of its size, and that the entire operation is run entirely by Bankman-Fried. Using corporate jargon, he also frets over potential "value leakage" arising from the FTT token and from the unusual overlap between FTX and Bankman-Fried's hedge fund, Alameda Research.
These concerns would turn out to be entirely prescient, as, after FTX imploded, it turned out that Alameda had been raiding customer money from the exchange while Bankman-Fried was using the in-house funny-money FTT tokens to prop up the company's balance sheet.
Unfortunately for Paradigm, the firm did not heed its initial misgivings, and, in what appears to have been a case of pure venture capital FOMO, instead pressed ahead all the same with its Series B investment. It went on to invest millions more only six months later in a follow-on round.
The exchange between Paradigm and Bankman-Fried also contains an additional nugget of interesting information in the form of the subject line of the emails, which is "Re: rob sarver."
The subject appears to refer to Robert Sarver, the onetime owner of the Phoenix Suns, and coincides with a time when Bankman-Fried was preparing to make a number of large investments into sports-related endorsements—including a $135 million naming rights deal with the Miami Heat.
In the email exchange, Huang tells Bankman-Fried he spoke to Sarver who "Said all good things" and wishes the pair luck on collaborating. Bankman-Fried replies that he hopes a deal with Sarver will come to fruition.
No such deal ever materialized, however, as Sarver would soon after confront allegations of racism and misogyny and go on to sell the Suns—and the WBNA's Phoenix Mercury—shortly after FTX collapsed.
This story was originally featured on Fortune.com
Caroline Ellison Testifies That SBF's Strange Philosophy Justified Lying and Stealing
Noor Al-Sibai
Wed, October 11, 2023
Blurred Lines
In her latest courtroom salvo, Sam Bankman-Fried's former colleague and romantic partner Caroline Ellison testified that her ex had what seems to be a pretty skewed moral compass.
As transcribed by Bloomberg, the latest remarks from Ellison, the former CEO of FTX sister firm and alleged slush fund Alameda Research, show not only Bankman-Fried's philosophical tolerance for dishonesty, but his purported penchant for pushing others into it as well.
SBF was, as Ellison put it, a "utilitarian" who didn't have much affinity for rules that prohibited lying and theft — a philosophy that ties in neatly with the Effective Altruism movement that both ascribed to.
Prior to the arduous crash of the FTX crypto exchange last fall and its stunning aftermath, Bankman-Fried, then a billionaire, was considered the poster boy for Effective Altruism, which is centered on making as much money as possible so that it can be used to help make the world a better place.
Though he admitted nearly a year ago that the "ethics stuff" was "mostly a front," Bankman-Fried's utilitarian thinking nevertheless seems, at least per his ex-girlfriend's reckoning, to have played a major role in the way he ran FTX.
"He thought the only moral rule that mattered," Ellison said in court today, "was doing whatever would maximize the utility."
Spittin'
As the 28-year-old said in her testimony, that attitude eventually rubbed off onto her and made her "more willing to do things like lie and steal."
"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," Ellison added, "but over time it was something I felt more comfortable with."
These remarks made during the former Alameda CEO's second day of testimony against Bankman-Fried offer another look into the modus operandi and self-regard of the disgraced crypto scion as more information comes out about him in court, in the media, and in a bombshell new SBF biography by journalist Michael Lewis that dropped just in time for the trial to begin.
During her previous appearance before the court, Ellison said Bankman-Fried "directed" her to commit the financial crimes she pleaded guilty to at the end of 2022, which included multiple counts of fraud and conspiracy.
"I sent balance sheets at the direction of Sam [Bankman-Fried] that made Alameda's balances look less risky to investors," she said during her October 10 testimony, per transcription from the crypto site Coindesk.
We've long known that Ellison's testimony against her ex-boyfriend and alleged co-conspirator was going to include loads of dirty laundry, but the bars she's dropping are nevertheless keeping us riveted as the case barrels on.
More on SBF: Alameda Secretly Had Value of Negative $2.7 Billion, Insider Tells Court
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