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Caroline Ellison, the 28-year-old star witness in one of the most closely watched fraud trials in US history, took the stand Tuesday to testify against her former business partner and sometimes-boyfriend Sam Bankman-Fried.
She said the two of them, along with other associates, committed fraud and money laundering in the lead-up to the collapse of FTX founder and CEO Bankman-Fried’s crypto empire.
It is Ellison’s first public appearance since she pleaded guilty to seven counts nearly a year ago. Wearing a salmon-colored dress and gray blazer, she pointed out Bankman-Fried as he sat stoically with his lawyers a few feet away. She testified for just a few minutes before the court adjourned for a lunch recess.
Under questioning from Assistant US Attorney Danielle Sassoon, Ellison told jurors that, as CEO of Alameda Research, the crypto firm founded by Bankman-Fried, she did not commit the crimes alone.
“They were committed with Sam,” she said. Asked about the role Bankman-Fried played in the criminal activity, she said he was the one who “set up the systems that allowed Alameda” to siphon money from FTX customer accounts.
Ellison described how their romantic relationship began around the fall of 2018. She described him as “very ambitious,” and wanted to use his money for political influence. He used to say there was a “5% chance he would become president someday,” Ellison testified.
Star witness
As the former head of Alameda — and as Bankman-Fried’s on-again-off-again girlfriend — Ellison is uniquely positioned to testify about how the crypto business spiraled out of control and ultimately collapsed into bankruptcy.
Her highly anticipated testimony is expected to corroborate the witness who preceded her, FTX co-founder Gary Wang who, like Ellison, testified as part of a plea agreement with prosecutors.
Ellison spoke clearly and confidently on the stand Tuesday as she offered examples of the criminal behavior that she says Bankman-Fried directed her to do.
She told the jury that, among other things, she sent balance sheets to Alameda’s lenders that incorrectly stated the reality of the fund’s balance sheet, making it look “less risky.”
Overall, she painted a picture of two business that were deeply intertwined from the start, with FTX created primarily as a tool to bring in more money for Alameda. In all key decisions, Ellison reiterated that the buck stopped with Bankman-Fried, even when she was CEO of Alameda.
When asked to recall her impressions of Bankman-Fried’s approach to risk, she replied said he “described himself as ‘truly risk neutral,’ meaning that he was comfortable taking on any big risk for a “positive EV,” or expected value.
For example, if you could flip a coin and on one side “the world would end,” it would be worth the risk as long as the other side meant the world would be more than twice as good, she said.
On-and-off relationship
Ellison said she first met Bankman-Fried when she was an intern at Jane Street Capital, a prominent Wall Street trading firm, and noted that the two of them dated for “a couple of years.”
“He was also my boss at work, which created some awkward situations,” she said Tuesday.
Although they lived together and weren’t keeping their relationship secret, they didn’t discuss it much with other employees. She said she often wanted more from their relationship but felt he was distant and not giving her enough attention.
Elements of her fraught relationship with SBF have already become public — not least because Bankman-Fried himself leaked some of her private writings to the New York Times, an act that ultimately landed him jail after prosecutors argued he was trying to intimidate Ellison ahead of trial. (SBF’s lawyers argued it wasn’t witness tampering, but rather an attempt to counter a “toxic” media environment that had maligned his reputation).
In a Google document addressed to Bankman-Fried from the spring of 2022 Ellison wrote that their breakup had “significantly decreased” her excitement about her job, and that life at Alameda “felt too associated with you in a way that was painful.”
Ellison is perhaps the second-most important person in the case after Bankman-Fried, who has pleaded not guilty and repeatedly tried to disperse blame for what he sees as ultimately bad business decisions rather than fraud.
And she is one of three former executives in Bankman-Fried’s inner circle who have since turned their backs on him, agreeing to plead guilty and cooperate with prosecutors in the hopes of securing a lighter sentence.
Ellison pleaded guilty in the hopes of securing a lighter sentence in exchange for her cooperation with the government. If she were given a maximum sentence on the seven counts, she could face more than 100 years in prison.
‘I knew it was wrong’
Her testimony offers rare insight into the collapse last year of a multibillion-dollar crypto empire and is crucial to prosecutors’ case against Bankman-Fried, whom they accuse of orchestrating a scheme to steal billions of dollars from customer accounts in FTX, his now-bankrupt crypto trading platform.
Prosecutors’ case hinges on evidence that FTX and Alameda were deeply financially intertwined, despite repeated assurances from Bankman-Fried that they were separate companies, operating independently from one another. The reality, prosecutors say, is that SBF founded both companies and used them as his own personal piggy bank. With money siphoned directly from FTX customer accounts, they say, Bankman-Fried splurged on luxury real estate for himself and his family, placed risky wagers on digital assets, and funneled millions of dollars in donations to US political campaigns.
Ellison, a Stanford graduate with a degree in mathematics, told the court at a hearing in December that Alameda had a virtually unlimited borrowing facility in FTX, and that she agreed to keep the two firms’ relationship hidden from investors and customers.
“I am truly sorry for what I did,” Ellison said. “I knew that it was wrong.”
Key moment under scrutiny
Prosecutors have hinted in court documents that one particular meeting, captured in an audio recording, will be part of their line of questioning.
As Alameda was spiraling last fall, Ellison told her employees that the fund had borrowed money from FTX customer accounts to pay back lenders. According to court documents, when one employee asks who made the decision, Ellison responds: “Um … Sam, I guess.”
Catch up
The trial began last Tuesday in Manhattan federal court, and is expected to last up to six weeks. Already, prosecutors have presented evidence that looks bad for Bankman-Fried, though the defense has yet to present its case. For everything you missed last week, catch up here.
