Thirty long seconds. That’s how long it took Caroline Ellison to identify Sam Bankman-Fried, her former boss and ex-boyfriend in a packed New York courtroom. “He’s sitting over there wearing a suit.” Known for years for his imposing, perpetually disheveled hair and his beach shorts, Sam Bankman Fried had his hair cut before his trial by a fellow inmate at the Brooklyn prison where he returned since August. Caroline Ellison is the key witness in the trial which opened a week ago in a New York court. From 2021 to 2022, she was the director of Alameda Research, this sister company of the FTX exchange platform. Specializing in high-risk trading of cryptoassets, Alameda is at the heart of the scandal since it is accused of having illegally used funds from FTX clients to finance risky positions. When the pot aux roses was discovered in October 2022, FTX customers sought to recoup their stake, precipitating the bankruptcy of the exchange platform and leaving a hole of some eight billion dollars.
It will take him less time to answer the question from the Manhattan assistant federal prosecutor: “Have you committed a crime?” “Yes, we committed one. I mean Sam, me and the others. Others include Gary Wang, co-founder and chief technology officer of FTX, Sam Trabucco, co-CEO of Alameda Research, Nishad Singh, CTO, and Ryan Salame, former chief client officer.
Caroline Ellison and Sam Bankman Fried met while she was an intern at Jane Street, a trading firm where “SBF” began his professional career. In 2017, he decided to create Alameda Research, which applies trading activity to cryptoassets. He convinces Caroline Ellison, a Stanford graduate like him, to join him as a trader. Shortly after, they began dating, an irregular relationship that lasted for a few years despite the hierarchical relationship, she said. Caroline Ellison, 28, pleaded guilty in December 2022, to seven counts and collaborated with Manhattan Federal Prosecutor Damian Williams. She agreed to testify at Sam Bankman-Fried’s trial in exchange for a reduced sentence, which has not yet been handed down.
For nearly two hours Tuesday, she recounted how Sam Bankman Fried knowingly dipped into client funds to fuel his risky projects. “Sam was the boss and owner of Alameda Research. He ordered me to commit these crimes, she said. He asked us to take money from clients to pay the loans (…) It was he who set up the system that allowed FTX client funds to be siphoned off. Caroline Ellison believes that Alameda Research pumped a total of around 14 billion into FTX’s accounts. According to his testimony, Sam Bankman-Fried not only set up a scheme to steal the funds, but also ordered his subordinates to use client funds to repay loans amounting to around 10 billion dollars. “In the end, we took about $14 billion, some of which we were able to repay. I sent balance sheets to creditors, at Sam’s direction, that incorrectly showed Alameda’s assets and liabilities,” she explained.
She explained that Sam Bankman-Fried was still CEO of Alameda when the practice of funneling money from FTX to the hedge fund began. Then in mid-2021, when FTX bought back shares in the company from its early investor, Binance, the platform decided to use $1 billion of customer money for the transaction, after a conversation with three between her, Bankman-Fried and Sam Trabucco, the co-chief executive of Alameda Research.
For its part, SBF regularly accused Caroline Ellison of mistakes and negligence in the management of Alameda, ensuring that he no longer followed the daily activities or the financial situation, even if he was still the majority shareholder. “I submitted major decisions to Sam,” she says. He was the person I reported to. He owned Alameda. He could have fired me, if he wanted to.”Caroline Ellison said she also raised concerns with her boss about personal loans granted by Alameda to Sam Bankman-Fried, as well as to other managers or companies being affiliated with them, for around five billion dollars, without provoking any reaction from the accused. These loans were also used to make donations to political figures. At the hearing, she mentioned a loan for the campaign of US President Joe Biden. Her testimony is scheduled to continue for part of the day on Wednesday.