Sam Bankman-Fried is the CEO of FTX, the founder of cryptocurrencies, and an old crypto celebrity: A trial for wire fraud and conspiracy

Ellison had given, in her direct testimony, fairly damning evidence tying FTX CEO Sam Bankman-Fried to the conspiracy to take FTX customer funds. There were fake balance sheets, one of which was sent to crypto lender Genesis. After receiving the balance sheet, a Genesis representative told Ellison that Bankman- Fried was aware of the things on the fake balance sheet. Not good!

Ellison said in testimony on Tuesday and Wednesday that Bankman- Fried was behind a plan to steal billions of dollars from customers, investors, and lenders.

And as Bankman-Fried’s former girlfriend, she had intimate knowledge of both the company and of the former crypto celebrity who now faces seven criminal charges that could send him to prison for the rest of his life.

Sam Bankman-Fried, the founder of failedcryptocurrencies exchange FTX, is currently on trial for wire fraud and conspiracy. FTX was a fraud “from the start,” the Securities and Exchange Commission alleges — with a “multi-billion-dollar deficiency caused by his own misappropriation of customer funds.”

Ellison said her role as CEO was frustrating. She didn’t receive a raise when she was promoted and even now, Bankman-Fried is still making decisions even though he left Alameda to focus on FTX.

“I was responsible for day-to-day decisions and responsibilities in Alameda,” she testified. I would always defer to Sam when making major decisions, even if he thought we should do something.

There was a difficult power dynamic between her and Bankman-Fried, Ellison noted when the prosecution asked why she was so deferential.

Bankman-Fried had a penchant for games of chance and was tolerant of risk. For example, she remembered how he once talked about being willing to lose $10 million if he drew tails in a coin flip — as long as he had the chance to win more than $10 million if he drew heads.

When crypto lending desk Genesis asked for a look at Alameda’s balances, Ellison initially made a fairly standard balance sheet and sent it to SBF for approval, she claims. He asked her to find other ways to present the information. Ellison was able to come up with seven alternatives that made Alameda’s financials look less risky, in part by renaming the amount borrowed from FTX, and sent the one approved by Bankman-Fried to Genesis.

She was stressed, Ellison said, and detailed how she conferred with Bankman-Fried about the balance sheet at Alameda, noting growing problems with the company’s ability to pay back loans.

Ellison said Bankman-Fried ordered her to change spreadsheets to make Alameda’s financial picture look better, and to ignore requests from lender to provide more information.

Ellison created seven different options and Bankman-Fried advised her to send one that minimized Alameda’s debts and played up the value of the firm’s holdings of FTT.

The defense implied that Ellison, not Bankman-Fried, was to blame for the failures at Alameda. In order to prove fraud occurred, the prosecution must show that Bankman-Fried knowingly lied. And Bankman-Fried was cagey about what he put in print. He had the company set their Slack and Signal messages to disappear, resulting in a lot of blank Signal chats in previous court exhibits, and again today.

Bankman- Fried talked a lot about how he could raise more money from investors while FTX was in a panic, Ellison testified.

She said Bankman-Fried talked repeatedly about trying to get money from Mohammed bin Salman, the Crown Prince of Saudi Arabia. She revealed that the plan was to use money from Saudi Arabia to pay back the loans. But that funding never materialized.

In the midst of theCryptocurrencies melt down, borrowers asked for money back from Alameda. It was hurt by the market downturn and its borrowing from FTX.

Ultimately, however, FTX and Alameda collapsed, and in short order, FTX declared bankruptcy and Bankman-Fried was arrested. Days later, Ellison pleaded guilty to several criminal charges and agreed to cooperate with federal prosecutors in their case against Bankman-Fried.

Finally, Ellison alleged, SBF became sympathetic to what one employee had called “his way” of fixing the issue. Ellison said that Alameda paid about $150 million to Chinese officials. She referred to the bribe as $150 million from the thing in a memo.

Ellison described a meeting in which a colleague whose father worked for the Chinese government protested repeatedly. Ellison said Bankman-Fried screamed at the employee to “shut the f— up.”

The testimony of Ellison and Bankman-Fried was allowed to be used to demonstrate the trust and confidence both men had in each other.

Kaplan made clear to the jurors that there isn’t an allegation of bribed foreign official in this trial. Bankman-Fried will be tried for both bank fraud and bribery next year.

After prosecutors first called her to the witness stand, everyone stood and faced the two wooden doors at the back of Judge Kaplan’s courtroom. Ellison was taken to the witness stand in the center aisle.

Ellison scanned the room after being asked by the prosecution if she could identify Sam Bankman-Fried for the jury. It took almost a minute for her to locate him.

It has been almost a year since Ellison pleaded guilty to several criminal charges, including counts of fraud and conspiracy, and agreed to cooperate with the U.S. government in its multi-count case against Bankman-Fried.

The daughter of M.I.T. economists, Ellison was a math major at Stanford University, and in her testimony, she described how she and Bankman-Fried met at the trading firm Jane Street. She was an intern and he was a trader.

In 2018, she and Bankman-Fried “started sleeping together on and off,” Ellison told the court. We had a romantic relationship in the summer of 2020.

FTX and Alameda Research Melting Down: When Did Caroline Ellison Tell Us? The Secret Life of Caroline Bankman-Fried

Over the course of hours of testimony, she described in detail personal and professional ups and downs, and the conspiracy of which she has admitted to being an integral part.

Last year, as cryptocurrency company FTX and sister trading firm Alameda Research were melting down, Alameda CEO Caroline Ellison held an all-hands meeting and told staff that Alameda had taken customer deposits from FTX and could not pay them back. Ellison said that he thought Sam was the answer after an employee asked if it was possible to use customer funds.

Lying and stealing were permitted, as “the only moral rule that mattered would be maximal utility,” Caroline Ellison testified on her second day at Bankman-Fried’s fraud trial. I glanced over at his parents, Joseph Bankman and Barbara Fried, to see what they made of this; both appeared to be busy scribbling into legal pads. In any case, the approach apparently worked for much of Bankman-Fried’s life — right up to demanding doctored balance sheets for the company Ellison supposedly ran.

Ellison knew it was likely not possible. FTX customer funds had been used to pay off those loans, she testified. The exchange wouldn’t have money if a large number of customers withdrew at the same time. “I was really stressed out,” Ellison said. I was in a state of dread at that point.

The customer funds were just in the investment portfolio, according to the defense lawyers. The problem is that putting those funds in an investment portfolio is still stealing the funds. Crypto exchanges aren’t banks; they don’t lend out customer money. At least, the honest ones don’t.

Ellison said he told her not to put anything in writing that she wouldn’t want to see on the front page of The New York Times. She violated that rule with a set of memos about their relationship. Bankman-Fried leaked them to that paper.

Ellison also testified that Bankman-Fried’s famously slovenly personal appearance was an act of careful public relations. He wanted to project the image of a smart, competent, and somewhat eccentric founder. He found Twitter particularly valuable for controlling the narrative, she said. She testified that she made investments in Semafor and The Block and considered investments in Forbes and Vox. Ellison didn’t testify, but Bankman-Fried’s foundation gave us a grant for a reporting project.

At least he did really sleep on a bean bag in the office, according to Ellison. This had been thrown into question by Bankman-Fried’s college roommate.

Remembering When Alameda and Bankman-Fried Shut Down: Ellison, Fried, and Everdell Explained the Event

Ellison wrote in his notes the problems with closing Alameda. Among them? Ellison said that Alameda had a job of market making for shitty things. Plus, Alameda was a backup liquidity provider for FTX.

Bankman-Fried thought the move was to make bold tweets, but he didn’t want to do it. Instead, Ellison did — writing in her own words a workshopped version of a tweet Bankman-Fried originally wrote, which began, “Heh, I see someone is really trying to FUD us.”

As the collapse was happening, we saw a text from Ellison. “This is the best mood I’ve been in a year tbh,” Ellison messaged Bankman-Fried. Bankman-Fried was the source of the screenshot, but how that date came from is not clear. Ellison cried looking at the messages. “To be clear,” she said, “that was overall the worst week of my life. I had a lot of mood swings that week, and a lot of different feelings.”

One of those feelings was relief. She said that she had been thinking about the truth every day. She didn’t have to lie anymore after the thing she had been worried about happened. She said she felt “indescribably bad” about all the people “who trusted us that we had betrayed.” A court clerk passed her a tissue.

It was suggested that the things you write can possibly save you. It is harder to portray Ellison as the sole decision-maker when there are proof that she made a move without being told by Bankman-Fried.

In the break after Caroline Ellison stepped down from the stand, Barbara Fried engaged defense lawyer Christian Everdell in an animated conversation. Fried, the defendant’s mother, was gesticulating, and clearly had a strong opinion about something. Everdell walked off, and Mark Cohen talked to her for a bit after that.

I think the defense was also trying to suggest that the government had coerced Ellison’s testimony, by suggesting that she had pleaded guilty to a charge of defrauding investors that she couldn’t have been involved in. She wasn’t prepared for materials for them. Unfortunately, she did say that she had conversations with investors as part of their due diligence — and, of course, Alameda was taking on losses from FTX to keep FTX’s balance sheet pristine. This line of questioning felt like a waste of time.

Before this case, I had been told that Everdell and Cohen were “workman-like,” which I took to mean that they were unshowy but competent. I now believe that comment was an insult. I was waiting for a juicy cross-examination as I like chaos and drama. I am beginning to think I am not going to get one.

I had a sad trombone. He bored the jury with his disorganized cross-examination. At one point, two different jurors appeared to be asleep.

Midway through the morning I began wondering if there was a mercy rule for cross-examinations. An easy to follow narrative was created by the prosecutors direct examination. By contrast, Cohen appeared to be bumbling around, taking up one topic only to abruptly pivot. Cohen had been preparing his lines of questioning all night while we remained in the prosecution’s case.

We established that Bankman-Fried had a much larger appetite for risk than Ellison. I thought it may be building to something but I was quickly dropped from the discussion. We established that Bankman-Fried and Ellison reacted differently to stress, and that they also had different approaches to media: namely, that Ellison avoided it while Bankman-Fried sought it out. Okay?

An Accountant at the Alameda Business School whose Accountant was stealing $mathbfRn$

We discovered that there was one accountant at Alameda in 2021, and two more junior accountants were hired in 2022. Apparently, Alameda had a problem with accountants who they couldn’t keep because of the CEO’s refusal to do the balance sheets. I was ready to hear this pursued further — but then it, too, was dropped.

There were rather a lot of sidebars during the cross-examination, to the point that when one occurred, several jurors looked entertained. According to the transcripts of yesterday’s proceedings, there was a complaint that Bankman-Fried was scowling at Ellison’s answers. I did not have a chance to look at his face as he occasionally shook his head and quivered at points during her testimony.

Cohen looked confused as several jurors were annoyed at him. He asked Ellison to define what “buy on the way down” meant, as though it were a term of art. (It means what you think it means, to purchase an asset that’s losing value.) This seemed to puzzle her. Cohen brought up the things she had not said when she was forgetting what she had testified to. Ellison was a little like Adam Yedidia before her, fastidious about making sure a question was clear and her answer was precise, but I don’t know if it was a ruse or just poor preparation.

When Sassoon got up for a quick redirect, she demolished any points Cohen had attempted to make. But I didn’t really appreciate her cleverness until after Ellison left the stand, and the jurors left the room. She set a small trap for Cohen.

On the direct examination, near the end, Sassoon asked about an Alameda all-hands meeting, without bringing up many specifics. Cohen asked Ellison what topics were covered in the meeting, but didn’t give any details. That opened the door for Sasson on redirect to work in that Ellison had confessed to stealing billions of FTX customers’ money, at Bankman-Fried’s direction.

There had been an open question of whether jurors would hear the tapes of Ellison’s remarks. The testimony set up an argument for the prosecution to bring in those tapes. The judge ruled in favor of the jury hearing the recordings and we briefly recessed.

The late afternoon was very busy. Drappi, a software engineer from Alameda who looked similar to a funeral director in a black suit and tie, appeared briefly to set up the tape. Drappi said that Ellison admitted the theft of customer funds to him when Changpeng Zhao, the CEO of the company that owns FTX, announced on social media that he intended to acquire it. The employee who joined Alameda three days before the all-hands took place secretly recorded the event.

The founder and former CEO of BlockFi was able to blame FTX’s bankruptcy for his company’s subsequent insolvency before we broke for the day.

SBF is on trial for fraud and money laundering, not for bribing Chinese officials, but the most lurid and surprising part of Ellison’s testimony took the jury and gallery on an absurd digression.

Chinese officials froze Alameda’s account on Chinese exchanges as part of a money-laundering investigation. For the next year, the FTX and Alameda teams made increasingly desperate and risky moves in order to recover the money. This included hiring lawyers, as well as creating accounts in the names of “Thai prostitutes” to execute “trading strategies” to move the money. Ellison testified that the information about the accounts came from a FTX executive.

Handi Yang is the daughter of a Chinese official. When Yang wouldn’t stop arguing against the idea, SBF yelled at her to “shut the fuck up,” Ellison claimed. Later in a group chat, the other employee joked about the father turning them in to the police, to which SBF responded with a laugh. This exhibit also resulted in Ellison explaining the meaning of “lol” to the judge and jury.

The prosecutor Danielle Sassoon asked why she had qualified her answer at the end of Ellison’s testimony. Ellison said it was a vocal tic. It wasn’t a question. She claimed that Bankman-Fried’s idea was the entire time.