Star witness at US crypto trial says FTX’s Sam Bankman-Fried ordered fraud
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Caroline Ellison, Bankman-Fried’s former business partner and girlfriend, said that they had stolen “around US$14 billion” from FTX clients.
PHOTO: AFP
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New York – Disgraced crypto wunderkind Sam Bankman-Fried was the mastermind behind a scheme to defraud FTX clients of billions of dollars, the star witness in his US trial testified on Tuesday.
Caroline Ellison, Bankman-Fried’s former business partner and girlfriend, said that they had stolen “around US$14 billion (S$19.1 billion)” from clients of the cryptocurrency trading platform before it collapsed into bankruptcy in late 2022.
The 31-year-old Bankman-Fried, co-founder and former chief executive of FTX, has been charged with seven counts of fraud,
In November 2022, the platform imploded, unable to cope with massive withdrawal requests from customers panicked to learn that some of FTX’s funds had been committed to risky operations by Alameda Research, Bankman-Fried’s personal hedge fund.
Ellison, 28, a Stanford University mathematics graduate, was appointed by Bankman-Fried in 2021 to head Alameda, whose activities were largely financed by money from customers of FTX – without their knowledge.
She has pleaded guilty to fraud charges and agreed to cooperate with the prosecution, as have two other close associates of Bankman-Fried.
After taking a good 10 seconds to identify her former romantic partner in the courtroom, Ellison said he was “the owner of Alameda, and he directed me to commit those crimes”.
Bankman-Fried “was the one who set up the system” that saw Alameda take the client money from FTX and use it “for investments and to pay back debts”, she told the court.
“For major decisions, I ran it by Sam. He was the person I officially reported to. He was the owner of Alameda. He could have fired me if he wanted to,” she said.
Ellison, a former analyst who developed mathematical models for market finance, said that she had expressed her reservations about the relationship between FTX and Alameda.
“I was somewhat concerned because it was something that customers weren’t aware of, and they wouldn’t be happy if they’d learnt about it,” she said.
Bankman-Fried’s lawyers are expected to argue against this depiction, saying that their client had little handle on the inner workings of Alameda’s business and placing the blame on Ellison for the alleged fraud.
‘Unlimited’ line of credit
But Ellison said Bankman-Fried set up the system to allow Alameda to borrow from FTX.
“What was the defendant’s involvement in using FTX customer money as a source for funds for Alameda?” prosecutor Danielle Sassoon asked.
Ellison said: “He said FTX would be a good source of capital, and he set up a system that allowed Alameda to borrow from FTX.”
She told the court that Alameda borrowed US$100,000 to as much as US$10 million at a time from FTX customer money that it used “for trading purposes”.
“I was somewhat concerned because I thought it was something that customers weren’t aware of and wouldn’t be happy if they knew about,” Ellison said.
The core of the government’s case is that Bankman-Fried treated Alameda as a personal ATM.
Alameda drew on a line of credit from FTX that was spent on real estate, political donations and losing trades.
Alameda eventually accounted for a US$8 billion hole in FTX’s books.
When asked if she was ever told about the exact size of the line of credit, Ellison replied that she did not recall, but believed that it was unlimited.
Ellison said that in 2020, she asked Bankman-Fried whether this line of credit would show up in FTX’s audit, and he told her: “Don’t worry, the auditors aren’t going to look at that.”
She said that Alameda’s money for trading was initially funded by loans from acquaintances.
Ellison said that the majority of them recalled their investments weeks after she started working at Alameda in 2018, as the hedge fund was performing poorly.
Bankman-Fried said “it was a big priority” for the company to get more loans, “in order to do more trades or have the ability to do whatever valuable things came up”, like investments or acquisitions, Ellison testified.
‘Awkward situations’
In court on Tuesday, Ellison said that she and Bankman-Fried – whom she called Sam during her testimony – had “dated for a couple of years”.
“He was also my boss, which created a lot of awkward situations,” she said.
The on-and-off-again couple and other FTX executives lived in a luxury apartment complex in the Bahamas until Bankman-Fried was arrested and extradited to the United States in late 2022.
Gary Wang, another associate of Bankman-Fried, last Friday described the FTX co-founder as willing to break the law and lie
