A lawyer for Sam Bankman-Fried on Thursday sought to undermine the testimony of Caroline Ellison, the prosecution’s star witness in his criminal fraud trial, as he continued to insist that the former cryptocurrency mogul was behind the misuse of thousands of millions of dollars in customer money on its FTX exchange.
During about five hours of cross-examination, Bankman-Fried’s defense attorney, Mark Cohen, questioned Ellison about his decision to cooperate with prosecutors in exchange for leniency. He also asked her about a document she sent to employees at Alameda Research, the cryptocurrency trading firm she ran for Bankman-Fried, that had painted a rosier picture of the company’s finances than she had described in private.
But Cohen did not elicit any major revelations or inconsistencies from Ellison, 28, who stuck to his earlier testimony that he followed orders from Bankman-Fried about allowing Alameda to access FTX client funds.
“I think they were terrible mistakes,” he said of Bankman-Fried’s decisions in the summer of 2022, which ultimately led to the collapse of FTX and Alameda Research.
A week after Bankman-Fried’s trial, Ellison has emerged as the strongest witness against her. In just over two days of testimony in Manhattan federal court, he told jurors that Bankman-Fried, 31, had known for months that Alameda’s finances were in precarious shape and that the company would find it difficult return most of it. of the $10 billion she had borrowed from FTX clients.
Ms. Ellison ran Alameda and dated Mr. Bankman-Fried intermittently. After FTX and Alameda failed in November, federal prosecutors accused Bankman-Fried of funneling billions of dollars in FTX customer deposits to Alameda and then spending the funds on political donations, real estate purchases and other projects. It became a symbol of arrogance and reckless risk-taking throughout the crypto industry.
Ms. Ellison and two other high-ranking FTX executives, Gary Wang and Nishad Singh, later pleaded guilty to fraud and agreed to cooperate with the government.
Ms. Ellison, who was on the witness stand for a third day, has offered some of the most raw and emotional testimony of the trial. On Wednesday, she choked back tears as she described the implosion of Bankman-Fried’s businesses, saying part of her was relieved that she no longer had to lie to hide that Alameda owed billions of dollars to FTX clients.
Under questioning by Cohen, Ellison admitted that she sent a misleading document to Alameda employees last year that presented a more optimistic version of the business venture’s performance than the one she had discussed with Bankman-Fried.
“Yes, I would say this document is misleading about the true status of Alameda,” he testified.
But Ellison said he did it to maintain the morale of Alameda employees at a time when the cryptocurrency market was under widespread stress.
Ellison also said that after Bankman-Fried put her in charge of Alameda in 2021, she was not involved in many of the company’s major decisions. When a prosecutor followed up, he said Bankman-Fried became more involved in Alameda in the spring of 2022 and decided to leverage money from FTX customers to pay off the trading company’s lenders.
Under questioning from Cohen, Ellison also said that despite her concerns, she did not resign from Alameda. But when a prosecutor questioned her again, she said she had seriously considered resigning in the months before the companies imploded and that Bankman-Fried talked her out of it.
“I trusted his opinion and I didn’t want FTX and Alameda to collapse, and if he thought my resignation could cause that, I didn’t want to do it,” he said.
Mr. Cohen also focused on the events surrounding Ms. Ellison’s decision to plead guilty and cooperate with prosecutors and her concerns about Alameda’s use of FTX client money.
Ms. Ellison said FBI agents showed up at her parents’ house last November after FTX and Alameda went under. Ms. Ellison said the officers had a search warrant that allowed them to take computers belonging to her boyfriend, who was staying with her at the time; and her mother, Sara Fisher Ellison, an economist at the Massachusetts Institute of technology. She did not name her boyfriend, but she said he had worked for Mr. Bankman-Fried’s businesses.
In total, Ellison said he had about 20 meetings with prosecutors, including one that lasted several hours on Monday, the day before he took the witness stand.
Ms. Ellison also said that despite her concerns about Alameda borrowing billions of dollars in FTX client money, she never discussed it with anyone other than Mr. Bankman-Fried, Mr. Wang and Mr. Singh.
At times, Ellison’s testimony this week devolved into a war of attrition between Cohen and prosecutors. The lawyers have had several conversations with the judge that the jury could not hear to discuss the admission of some evidence.
In a conversation Wednesday, Danielle Sassoon, an assistant U.S. attorney, said she noticed that Bankman-Fried had “laughed, visibly shook her head and scoffed” at several points during Ellison’s testimony. Sassoon speculated that she might be “having a visible effect on her,” according to a transcript of the trial.
Judge Lewis A. Kaplan, the judge presiding over the trial, said he had not seen what Ms. Sassoon had referred to, so he would not make any comments to the jury. But the judge told Bankman-Fried’s lawyers to privately tell her client that if she was making any visible expressions, he should stop.
Christian Drappi, a former Alameda developer, took the stand after Ellison finished Thursday afternoon. During her testimony, the prosecution played an audio recording of a “general meeting” in which Ms. Ellison told Alameda employees about the use of FTX client funds and the impending collapse of the company. company.
The turn of events left Drappi “completely shocked,” he said.