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At a glance
- During Sam Bankman-Fried’s trial yesterday, Caroline Ellison briefly lost her composure as she described the sense of relief she felt after FTX collapsed and the truth came out.
- Ellison described efforts to use the identities of “Thai prostitutes” to create fake accounts on Chinese crypto exchanges to extract frozen Alameda Research money.
- Bankman-Fried was very calculating about his image, Ellison testified. Alameda paid for luxury cars early on, but Sam traded them in for more modest models, such as a Toyota Corolla, apparently to better align with his image of selflessness.
- The name of Bankman-Fried’s father, Joseph Bankman, could be seen in records of group chats in which executives seemed to contemplate further fraud.
Caroline Ellison’s continued testimony in the Sam Bankman-Fried case reached a dramatic peak on Wednesday, October 11. Ellison, the nominal former CEO of Alameda Research, very effectively conveyed that Bankman-Fried was in charge of all the important decisions.
Ellison’s testimony included dozens of scandalous details about her time working for her former boyfriend. This included using the identities of what Ellison described as “Thai prostitutes” in a scheme to extract Alameda funds frozen on Chinese crypto exchanges. This effort failed, leading to the payment of large apparent bribes to Chinese officials to unfreeze the funds. Ellison described her own role in this bribery — at Bankman-Fried’s orders — in detail, though the bribery itself is part of charges that will receive a separate trial.
Ellison also detailed what the jury is likely to see as Bankman-Fried’s calculated efforts to deceive investors and the public about his character — efforts some might find even more instinctively off-putting than his financial manipulations. One significant element of Bankman-Fried’s selfless image was the idea that he was a billionaire who still drove a modest Toyota Corolla. But Ellison said that when she first arrived at Alameda, both she and Bankman-Fried had company-funded luxury cars. Later, Sam had the cars traded in for more modest models because, Ellison said, “he thought it was better for FTX’s image.”
Bankman-Fried breaks norm to watch Ellison speak
Bankman-Fried showed only subtle signs of being affected by Ellison’s testimony. For much of the trial he has been practically a statue, sitting upright at the defense table with his fingers on the keyboard of a laptop where he is ostensibly reviewing documents for his defense. But several times during Ellison’s he broke this pose, resting his chin on his hand and watching as she spoke.
Ellison seemed calm and precise for most of the testimony. This only changed briefly as she choked up while describing the days surrounding FTX and Alameda’s collapse in November 2022. Prosecutors showed records of chats in which she told Bankman-Fried she was in “the best mood I’ve been in in a year” on November 7, 2022.
Read more: Caroline Ellison delivers the financial smut we’ve been waiting for
“That was overall the worst week of my life,” she testified. “[But] one of the feelings was a sense of relief that I didn’t have to lie anymore, that I could start being honest and start taking responsibility …”
Overall, Ellison was very convincing in the role of a fairly naive person who had made serious mistakes but genuinely regretted them. Whether or not the jury feels the same could be the crux of the entire trial — the defense, in their cross examination, is likely to try and pin a lot of responsibility for FTX’s fall on Ellison.
Alameda, FTX, and Modulo Capital funds “the same,” SBF wrote
Ellison testified to receiving explicit instructions from Bankman-Fried to further various kinds of fraud, including misrepresenting the nature of Alameda Research, manipulating the market price of the FTT token, and creating fake balance sheets to deceive investors and lenders.
She told the court that Bankman-Fried effectively guided her to lie to a Bloomberg reporter for a piece about the ties between Alameda and FTX. At the time, Ellison described the relationship between the two entities as “arm’s length,” but on the stand Wednesday she said that wasn’t true at the time.
Ellison addressed an infamous Twitter reply she sent to Changpeng Zhao (CZ), CEO of Binance, offering to buy FTT tokens for $22 each as CZ sought to unload them. She described Bankman-Fried ordering her to both make that tweet, and to defend the price of FTT as faith in FTX failed. Ellison estimated Alameda spent “tens of millions [of dollars], maybe $100 million” defending FTT’s price at $22. This money, Ellison said, would otherwise have gone to fulfilling customer withdrawals.
In one particularly striking document, Bankman-Fried wrote to executives at both Alameda Research and Modulo Capital, another trading firm effectively funded by stolen FTX customer money. Tensions had arisen between Alameda and Modulo — nominally separate companies which in theory should have been competitors in the market.
This firm got $475M from SBF last year, now FTX wants it back
Read more: Sam Bankman-Fried used prostitutes in bid to unfreeze funds, says Caroline Ellison
But in fact, according to Bankman-Fried, everyone should be “treating all dollars the same” between the three firms. The priority for all staffers at the three firms should be “being aligned and always doing what is best for the company” (emphasis added). Though the prosecution didn’t belabor the point, the document seemed to make more explicit than ever that Bankman-Fried had engineered a shell game that relied on the illusion of separation between entities that were in fact active collaborators.
This was just one of many moments when it was clear that Sam Bankman-Fried saw no boundaries between the balance sheets of Alameda Research, FTX, or the countless smaller entities that made up his Potemkin empire. Again and again, Ellison described Bankman-Fried ordering her to create documents or send messages that misrepresented exactly what assets belonged to which entity.
Most specifically, Ellison walked the court through the preparation of a fake balance sheet to be sent to Genesis Trading in the early summer of 2022. On Bankman-Fried’s orders, she prepared a whopping seven different balance sheets, which concealed Alameda’s billions of dollars worth of related-party loans and borrowing from FTX balances in a variety of ways. Ellison and Bankman-Fried eventually chose one of these to send to Genesis, which overstated Alameda’s net value by many billions of dollars.
Joseph Bankman seen in group chat discussing FTX fraud
Another seeming revelation was not highlighted by prosecutors: evidence that seemed to even more deeply implicate Joseph Bankman, Sam’s father. Towards the end of her testimony, Ellison was guided to comment on screenshots of a group chat called “small group chat.” In that chat, on around November 8 as everything unraveled, FTX senior management explicitly discussed whether, and in what ways, to lie about how much money FTX actually had to cover withdrawals.
Attendees who looked closely could see the recipients of those messages: Sam Bankman-Fried, Caroline Ellison, Nishad Singh, Ramnik Arora, Gary Wang — and Joseph Bankman.
The next court session on Thursday, October 12 will focus on Ellison’s cross-examination by defense counsel Cohen.