Inside the private writings of Caroline Ellison, star witness in FTX fraud case

NEW YORK - Three months before the cryptocurrency market imploded in 2022, Caroline Ellison, the 27-year-old chief executive of crypto hedge fund Alameda Research, was racked with self-doubt.

“I have been feeling pretty unhappy and overwhelmed with my job,” Ellison wrote in a Google document in February 2022.

She added: “At the end of the day, I can’t wait to go home and turn off my phone and have a drink and get away from it all.”

Ellison had a lot on her mind.

She did not think that she was well suited to running Alameda or particularly decisive as a leader, she wrote in another Google document.

She was also going through a break-up with Sam Bankman-Fried, the billionaire entrepreneur who had founded Alameda and then FTX, one of the world’s largest cryptocurrency exchanges.

They had dated on and off, and Ellison worried about “making things weird” and “causing drama”.

Now Ellison is poised to be a star witness at Bankman-Fried’s criminal trial, which is scheduled for Oct 2.

Bankman-Fried, 31, is accused of misusing billions of dollars taken from customer accounts and faces eight counts of fraud and election law violations.

His spectacular downfall, which

sent FTX and Alameda into bankruptcy,

transformed Ellison from a powerful – yet relatively private – figure into a target of tabloid speculation.

In December, she pleaded guilty to fraud charges and agreed to cooperate with the federal prosecutors.

As Bankman-Fried’s sometime-girlfriend and one of his earliest hires, Ellison had unique insight into the FTX founder.

She also recorded many of her thoughts in writing, making observations about her personal and professional life in a handwritten diary and on Google documents.

The documents, which have not been previously reported, offer new insight into Ellison’s psychology during the final months of FTX.

Ellison, a Stanford graduate, got to know Bankman-Fried at Jane Street, the quantitative trading firm where he worked after college.

They shared a commitment to effective altruism, the charitable movement that has gained adherents in the tech and finance industries.

After Bankman-Fried left Jane Street to start Alameda in 2017, he recruited Ellison as a trader.

In 2021, he promoted her to co-CEO.

Bankman-Fried and Ellison also started an unsteady romantic relationship, with multiple break-ups and reconciliations.

By 2022, Bankman-Fried had become one of the world’s most prominent crypto entrepreneurs, his face plastered on billboards and magazine covers.

His fame seemed to make life at FTX and Alameda harder for Ellison.

Staying put meant “having to be around you all the time, hearing people talk about how great you are all the time”, she wrote in an April 2022 document.

Ellison was compensated far less generously than other top executives at FTX and Alameda, though it is unclear whether she was aware of it.

According to court filings, the exchange’s founders and other key employees received US$3.2 billion (S$4.3 billion) in payments and loans.

Of that total, US$6 million went to Ellison, compared with US$587 million for Nishad Singh, FTX’s head of engineering, and US$246 million for Gary Wang, one of the founders.

Bankman-Fried received US$2.2 billion.

In May 2022, the crypto market crashed, sending coin prices spiralling and plunging several prominent companies into bankruptcy.

During the crisis, regulators have asserted, Bankman-Fried, Wang, Singh and Ellison filled a hole in Alameda’s accounts using billions in customer funds deposited with FTX.

Even before then, Ellison doubted her own abilities.

In the April 2022 document, she made a list of areas where she struggled, including “leadership” and “decisiveness”.

By last autumn, Bankman-Fried had lost faith in Alameda.

He considered shutting the firm, according to court records, and invested more than US$400 million in another trading company, Modulo Capital, which was led by a different former Jane Street trader whom he had also dated.

Ellison expressed jealousy and resentment towards Modulo in some of her writings, as well as a feeling that she was being squeezed out, two people who have seen the documents said.

Bankman-Fried’s business empire collapsed in November after a run on deposits exposed an US$8 billion deficit.

“I just had an increasing dread of this day that was weighing on me,” Ellison wrote to him in a message that month, which was excerpted in court records. “Now that it’s actually happening it just feels great to get it over with.”

People who know Ellison say they have been struck by her earnestness and her willingness to admit her own failings.

In court in December, she said she was “truly sorry” for committing fraud.

“I knew that it was wrong,” she said.

Ellison is expected to repeat that assertion at Bankman-Fried’s trial, which is set to last four or five weeks.

Ms Moira Penza, a former federal prosecutor, said that the best government cooperators accepted blame on the witness stand and that the “power differential” between Ellison and Bankman-Fried could make her a compelling voice.

“This does not strike me as an effective strategy for the defendant to be blaming down,” Ms Penza said. “Especially with someone who was once a romantic partner.” NYTIMES