Caroline Ellison, a high adviser to the cryptocurrency mogul Sam Bankman-Fried, testified on Wednesday that she had lied time and again at his request, deceptive the general public about his companies and circulating “dishonest” monetary paperwork to crypto lenders.
By the point Mr. Bankman-Fried’s two firms — FTX, a digital forex change, and Alameda Analysis, a hedge fund — collapsed in November, the lies had develop into an excessive amount of to bear, Ms. Ellison mentioned, and the implosions have been virtually cathartic.
“General it was the worst week of my life,” mentioned Ms. Ellison, 28, combating again tears as she recounted the frantic week when the businesses failed. “I felt this sense of reduction that I didn’t need to lie anymore, and that I may begin taking accountability although I felt indescribably unhealthy.”
Ms. Ellison’s testimony, in her second day on the witness stand, was probably the most emotional second up to now of Mr. Bankman-Fried’s fraud trial. She was broadly thought of the federal government’s star witness, partly as a result of she dated Mr. Bankman-Fried on and off for years, giving her distinctive entry to the FTX founder as his crypto empire grew. His trial in federal courtroom in Manhattan has develop into a referendum on high-risk practices throughout the crypto trade that led to billions of {dollars} in losses final 12 months.
Within the courtroom, Mr. Bankman-Fried, 31, didn’t visibly react to Ms. Ellison’s testimony. Throughout a break in proceedings, he glanced at a gaggle of reporters sitting within the gallery and raised his eyebrows.
Mr. Bankman-Fried has been charged with orchestrating a scheme to show FTX into his private piggy financial institution. The authorities contend that he stole as a lot as $10 billion from FTX clients to finance enterprise capital investments, purchase luxurious actual property, make marketing campaign donations and repay lenders to Alameda.
Ms. Ellison, who was Alameda’s chief govt, has mentioned she served as one in every of Mr. Bankman-Fried’s important accomplices by channeling FTX buyer funds into Alameda’s coffers. In December, she pleaded responsible to fraud and conspiracy and agreed to cooperate with prosecutors in return for leniency. Gary Wang and Nishad Singh, two high FTX executives, additionally pleaded responsible and are cooperating with the federal government.
Mr. Bankman-Fried has pleaded not responsible to seven legal counts, together with a cost of defrauding lenders. He may face what would quantity to a life sentence in jail if he’s convicted.
Since FTX collapsed, Ms. Ellison has confronted far larger public scrutiny than both of the opposite cooperating witnesses. She and Mr. Bankman-Fried lived collectively within the Bahamas, the place FTX was based mostly, and shared a turbulent workplace romance as FTX grew right into a $32 billion crypto behemoth. On Tuesday, Ms. Ellison recounted intimate particulars of the connection, together with the tensions it precipitated at work and her personal anxieties about Mr. Bankman-Fried’s emotions towards her.
When she returned to the stand on Wednesday, Ms. Ellison walked by way of the historical past of FTX’s monetary issues. She advised jurors that the change started falling aside in spring 2022 when the crypto market crashed.
Ms. Ellison mentioned she had saved detailed spreadsheets that confirmed simply how a lot Alameda owed its lenders and the way a lot it was counting on buyer deposits from FTX to pay down these loans within the worst-case state of affairs. She mentioned she had shared her evaluation with Mr. Bankman-Fried.
The worst case occurred in June 2022 when Alameda’s lenders started asking for a reimbursement. Alameda’s personal crypto belongings had plunged in worth through the market downturn, that means the agency had little solution to make its lenders complete.
“I used to be in form of a continuing state of dread at that time,” Ms. Ellison testified. At occasions, her testimony turned emotional, and a courtroom official handed her a tissue as she tried to stifle sobs. She mentioned she had been involved that if the general public discovered that Alameda had been taking FTX buyer funds, “all the pieces would come crashing down.”
Even after she laid out the dangers, she mentioned, Mr. Bankman-Fried directed her to make use of extra buyer deposits to repay the lenders. Ms. Ellison mentioned she had adopted his directions although “I knew it was fallacious.”
To cover Alameda’s fragile monetary state, Ms. Ellison mentioned, Mr. Bankman-Fried advised her to provide one of many agency’s greatest lenders — a crypto firm known as Genesis — a deceptive steadiness sheet in summer time 2022 that hid that Alameda had borrowed some $10 billion in FTX buyer cash.
“I didn’t need to be dishonest, however I additionally didn’t need them to know the reality,” she mentioned. She testified that she had despatched comparable “dishonest” steadiness sheets to different lenders earlier than FTX’s collapse.
She broke up with Mr. Bankman-Fried in the course of 2022, and their work relationship additionally frayed. Throughout a heated dialog with him in August 2022, she broke down and cried when he blamed her for Alameda’s monetary troubles, she testified. He accused her of not taking sufficient measures earlier within the 12 months to cut back Alameda’s buying and selling dangers within the crypto market.
“He was talking loudly and strongly,” she mentioned. “I bought very upset, began crying, and I had hassle persevering with the dialog.”
Ms. Ellison additionally testified about massive funds that Alameda made in 2021 to unfreeze $1 billion it had saved in buying and selling accounts at two Chinese language exchanges. In March, prosecutors charged Mr. Bankman-Fried with paying tens of hundreds of thousands in bribes to the Chinese language authorities to regain entry to these accounts.
Prosecutors later determined to pursue the overseas bribery cost at a separate trial scheduled for subsequent 12 months. However the choose overseeing the case, Lewis. A. Kaplan, allowed Ms. Ellison to debate a few of FTX’s efforts to unfreeze the cash, whereas reminding the jury that Mr. Bankman-Fried is just not dealing with a bribery cost at this trial.
Ms. Ellison mentioned one failed try to unfreeze the cash had concerned buying and selling accounts arrange within the names of “Thai prostitutes.” After Alameda’s cash was unfrozen, she mentioned, she was cautious about how she described the funds on inner paperwork.
“I didn’t need to put in writing that we had paid what I believed have been bribes,” she mentioned.
Ms. Ellison additionally defined why she had been keen to go together with Mr. Bankman-Fried’s schemes.
Earlier than his firms collapsed, Mr. Bankman-Fried usually described himself as a utilitarian — that means that he made choices designed to advance the larger good. He advised Ms. Ellison that “guidelines like ‘don’t lie’ or ‘don’t steal’” didn’t match into that framework, she mentioned.
Over time, she defined, these beliefs began rubbing off on her.
“It made me extra keen to do issues like lie or steal,” she mentioned.
Mr. Bankman-Fried’s attorneys will query Ms. Ellison when the trial resumes on Thursday.