The Manhattan courtroom was packed on Tuesday as Caroline Ellison, the former girlfriend of SBF and former CEO of Alameda Research, appeared in court to testify. This was the first time the two had faced each other in court since the collapse of their jointly created cryptocurrency trading companies FTX and Alameda Research in November last year.
Although other FTX executives like Gary Wang and Nishad Singh have a deep understanding of the exchange’s structure and design, Ellison has a unique perspective to discuss transaction affairs and the way Alameda and FTX use customer funds. As a star witness for the government and the most widely discussed colleague of SBF so far, Ellison is a key figure in the trial and her testimony has attracted much attention.
In her preliminary testimony of about 15 minutes, Caroline Ellison told the judge that she had engaged in fraudulent behavior under the guidance of her ex-boyfriend, former colleague, and FTX exchange founder Sam Bankman-Fried (SBF). SBF instructed her to withdraw funds from FTX customer funds for investment and loan repayment for Alameda Research.
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Ellison said, “Alameda misappropriated billions of dollars from FTX customers and used it for their own investments and to repay lenders. We ultimately misappropriated approximately 14 billion US dollars, only a portion of which was able to be repaid.”
Who is Ellison?
Caroline Ellison was born in Boston in 1994. Both of her parents are economics professors at MIT. She graduated from Stanford University in 2016 with a bachelor’s degree in mathematics.
Ellison was once the CEO of one of the most successful hedge funds in the cryptocurrency field and was the first member of SBF’s core circle to reach a plea agreement with prosecutors.
The two met over five years ago at the Jane Street trading company in New York. They bonded over their shared commitment to effective altruism, a popular charity movement in the North American tech industry, and developed feelings for each other. Ellison testified that they started dating in the summer of 2020 and ended this complicated relationship in the spring of 2022.
When asked about her relationship with SBF, Ellison claimed to have been in a completely vulnerable position in this relationship, as SBF did not want others to know that they were dating.
She said, “He was my boss at work, he owned the company, he set my salary, and he could fire me at any time.”
She said she eventually broke up with him because “he was often emotionally abusive or indifferent to me.”
Caroline told the judge that her annual salary was $200,000 with semi-annual bonuses, and she earned a $21 million bonus in 2021, most of which she kept in the FTX exchange.
Memos and Spreadsheets
On that day, the prosecution used Caroline Ellison’s memos and spreadsheets to demonstrate the extent of SBF’s “ambition.”
Assistant U.S. Attorney Danielle Sassoon spent a lot of time reviewing the documents provided by Ellison, especially a document from the fall of 2021 in which SBF asked her to analyze the consequences of a “10% scenario.”
At the time, Bankman-Fried wanted to invest $3 billion in venture capital. The scenario was, if he did so, assuming that the cryptocurrency market would crash and existing venture capital and stocks would all plummet, what would happen if the cryptocurrency company Genesis stopped lending? Would the bad news from FTX make it even more difficult for them to raise equity?
According to Ellison’s analysis, investing $3 billion would expose Alameda to great risk, and if lenders recalled their loans, the company would essentially be unable to repay its debts.
Ellison claimed that even after reviewing her analysis, SBF still insisted on moving forward with the $3 billion investment. Shortly thereafter, Bankman-Fried announced in a tweet in January 2022 that FTX had launched a $2 billion risk fund, which was actually controlled by Alameda.
When asking Ellison for details on various spreadsheets, the prosecution repeatedly asked if her calculations already included FTX customer deposits.
She replied: yes. In fact, both Bankman-Fried and Ellison assumed that FTX customer deposits could be used to help Alameda.
Ellison said that Alameda had been using FTX customer funds for many years. She said that at a meeting in Hong Kong in 2021, SBF authorized the use of FTX customer deposits to repurchase about $2 billion worth of exchange stocks owned by competitor Binance.
Alameda paid for the acquisition of Robinhood shares
Ellison also mentioned Bankman-Fried’s purchase of over $600 million worth of shares in Robinhood Markets Inc. in May 2022.
She said that these shares were paid for by Alameda, but when it was necessary to publicly disclose the purchase, Bankman-Fried requested that the equity be transferred to another FTX entity because he did not want to be associated with Alameda. This acquisition once again demonstrates that SBF continues to be involved in Alameda’s business, despite claiming to have almost no relationship with the company.
Ellison emphasized that Bankman-Fried is the ultimate decision-maker of the FTX empire. He is fully aware that Alameda is taking funds from FTX customers and has almost unlimited credit with cryptocurrency exchanges. Despite publicly distancing himself from Alameda and claiming not to manage the company, Ellison stated that Bankman-Fried guided her on how to handle the FTT tokens held by Alameda and its venture capital, as well as other significant business decisions.
Alameda provided $5 billion in personal loans to SBF and other executives
Alameda’s borrowing continued to spiral upwards in 2022, even increasing in ways that Ellison was not aware of. In May 2022, she learned that the company had provided $5 billion in personal loans to SBF, co-founder of FTX Gary Wang, and former director of engineering Nishad Singh, which were used to fund venture capital and political donations. Ellison testified that SBF was “very interested” in politics and believed that a small amount of money could yield high returns in terms of political influence, and mentioned wanting to use his own money to exert political influence. SBF had once stated that he had a 5% chance of becoming president one day.
As Alameda borrows more and more money, SBF has launched tokens such as FTT and Serum, providing about 60-70% of FTT tokens to Alameda for free. Ellison stated that SBF also instructed her to secretly purchase FTT if it falls below $1 (which he considers to be of “psychological importance”), without discussing the purchases in front of employees. Ellison testified that with the receipt of FTT, Alameda is able to obtain regular loans from lenders such as Genesis.
The prosecutor stated that Ellison’s testimony is expected to continue until tomorrow.
Author: LianGuaiBitpushNews Mary Liu
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