Caroline Ellison, who was a top adviser to disgraced cryptocurrency executive Sam Bankman-Fried, said Wednesday that he ordered her to send “dishonest” balance sheets to major lenders at the trading company she ran for him.
On his second day testifying in the Bankman-Fried criminal fraud trial, Ellison said he prepared false balance sheets in the summer of 2022 to conceal that the cryptocurrency trading firm, Alameda Research, had borrowed billions of dollars from clients. from FTX. , the cryptocurrency exchange that Bankman-Fried also controlled.
“Yes, I considered it dishonest,” said Ellison, 28, who also dated Bankman-Fried. He said Alameda’s financial statements “hid the fact that we were borrowing $10 billion from FTX clients” and that the company had no way to repay that money.
The testimony of Ellison, the government’s star witness, was based on the account she gave in court Tuesday, when she said Bankman-Fried had repeatedly ordered her to commit crimes. The trial has become a referendum on the volatile cryptocurrency industry, with Bankman-Fried emerging as a symbol of its carefree and high-risk practices.
In the courtroom, Bankman-Fried, 31, did not visibly react to Ellison’s testimony. During a pause in the debate, he looked at a group of journalists sitting in the gallery and raised his eyebrows.
Bankman-Fried has been accused of orchestrating a scheme to turn FTX, which filed for bankruptcy last year, into his personal piggy bank. Authorities contend he stole up to $10 billion from FTX clients to fund venture capital investments, buy luxury real estate, make campaign donations and pay off Alameda lenders.
Ellison, who was CEO of Alameda, admitted that she was one of Bankman-Fried’s main accomplices in funneling FTX customer funds into Alameda coffers. In December, she pleaded guilty to fraud and conspiracy and agreed to cooperate with prosecutors in exchange for leniency. Gary Wang and Nishad Singh, two senior FTX executives, also pleaded guilty and are cooperating with the government.
Bankman-Fried, who has pleaded not guilty, could face what would amount to life in prison if convicted.
Of Bankman-Fried’s top advisers, Ellison is by far the one who has faced the most scrutiny. She and Bankman-Fried dated on and off as FTX grew into a $32 billion behemoth. On Tuesday, Ellison recounted intimate details of their relationship, including the tensions it caused at work.
When he returned to the stand on Wednesday, Ellison told jurors that FTX’s finances began to unravel in the spring of 2022 when the cryptocurrency market collapsed.
Ellison said he kept detailed spreadsheets showing how much Alameda owed its lenders and the extent to which it depended on FTX customers to pay off those loans in the worst-case scenario. He said he shared his analysis with Bankman-Fried.
The worst case scenario occurred in June 2022, when many of Alameda’s lenders began asking for their money back. Alameda’s own crypto assets had lost value during the market crisis, meaning the company had few ways to pay lenders, forcing it to use FTX clients’ money.
“At that point I was in kind of a constant state of fear,” Ms. Ellison testified. She said she was concerned that if FTX’s use of client funds became public, “everything would fall apart.”
Bankman-Fried directed him to tap FTX customer funds to pay Alameda lenders and he fully supported the idea, he said. Ellison said he followed instructions even though he “knew it was wrong.”
To conceal Alameda’s fragile financial state, Ellison said Bankman-Fried had told him to give one of the company’s largest lenders, a crypto company called Genesis, a misleading balance sheet in the summer of 2022.
“I didn’t want to be dishonest, but I also didn’t want them to know the truth,” she said. Alameda would have gone bankrupt if it had defaulted on its loans, she said, and using FTX customer funds gave it the opportunity to replace that money without anyone finding out.
Ellison said she and Bankman-Fried were concerned that if they gave Genesis an accurate balance sheet showing that Alameda owed $9 billion to FTX for its clients’ loans, it could become public and destabilize Alameda and FTX.
“On Sam’s orders,” he said, he sent the misleading balance sheet to Genesis. She testified that she sent similar “dishonest” balance sheets to other lenders before FTX’s collapse.
During a heated conversation with Bankman-Fried in August 2022, she broke down and cried when he blamed her for Alameda’s financial problems, she testified. He accused her of not taking enough steps earlier in the year to reduce Alameda’s trading risks in the crypto market.
“He spoke loud and strong,” he said. “I got really angry, started crying, and had trouble continuing the conversation.”
