On the sixth day of U.S. v. Samuel Bankman-Fried, the star witness for the prosecution, Caroline Ellison, broke down crying on the stand. This was her second day in court, in around her seventh hour of testimony, and she was discussing the utter relief she felt when FTX and Alameda Research, Bankman-Fried’s conjoined crypto operations, finally collapsed last year. For much of her time on the stand, she testified in granular detail about the lengths to which she had gone, allegedly at Bankman-Fried’s direction, not only to steal money from unwitting FTX customers but to conceal the crimes to get even more money, effectively leveraging their proceeds.
Visible on a screen was a text she had sent to Bankman-Fried, her former boyfriend and boss, amid the collapse: “I think I just had an increasing dread of this day that was weighing on me for a long time. And now that it’s actually happening it just feels great to get it over with one way or another.”
“To be clear, that was overall the worst week of my life. I had a lot of mood swings during that week and a lot of different feelings,” Ellison said on the stand. “It’s something that had been on my mind every day, worrying about what would happen when the truth finally came out. And I felt a sense of relief that I didn’t have to lie anymore, that I could start taking responsibility and be honest about what I had done.”
This trial has not been one to hinge on emotion or drama. The majority of Ellison’s testimony so far has been spent parsing spreadsheets and text messages that discuss numbers and investment strategies. (At one point Wednesday morning, perhaps sensing Judge Lewis Kaplan’s fatigue, prosecutor Danielle Sassoon promised to display no more spreadsheets. “Microsoft’s stock must be plummeting,” Kaplan quipped). But when Ellison cracked, it was a moment of clarifying human emotion that will likely make it only harder for Bankman-Fried to establish reasonable doubt about his guilt. But she also offered up a remarkable — and very damning — wealth of testimony about all the shady things Bankman-Fried had been up to in his quest to dominate the world of crypto (and then the world, period). At one point, Ellison said she’d gotten sucked into his “utilitarian” worldview, which excused anything as long as it made them money that he would then use for the greater good. “He said he thought that rules like ‘don’t lie’ and ‘don’t steal’ didn’t fit into that framework,” she said.
To be clear, the government is alleging that Bankman-Fried committed two counts of fraud and five counts of conspiracy. The big counts relate to as much as $14 billion in FTX customer funds that Alameda borrowed in order to make investments in Bankman-Fried’s other companies as well as to buy naming rights to stadiums and pay for political donations. But other kinds of fraud compounded this — among them, a fake spreadsheet Ellison compiled for one of Alameda’s lenders, a now-bankrupt company called Genesis.
At the time, Alameda had billions in “open-term loans” from Genesis that could be called at any time. Around June 2022, Genesis called some of these loans — the crypto markets were crashing — and asked to see Alameda’s balance sheet to gauge its financial health. The problem was that Alameda had borrowed nearly $10 billion in FTX customer deposits, and showing that to a lender would not only expose the fraud but likely cause the rest of the loans to be called.
The solution? “Alternative balance sheets,” as Ellison called them. Basically, Bankman-Fried had asked her to fudge the numbers so their liabilities wouldn’t look as bad and Alameda would appear to have more cash than it did. “I understood him to be directing me to come up with ways to conceal the things on our balance sheet that we both thought looked bad,” Ellison said. She created seven alternatives for him to choose from — the seventh of which just deleted loans to insiders and the borrowed FTX customer money. Bankman-Fried directed her to send that one, she said. And she did. “I didn’t really want to be dishonest, but I also didn’t want them to know the truth,” she explained. “So I just thought I’d prepare a variety of things and ask Sam what he wanted me to do.”
The striking thing about this is that Ellison has already pleaded guilty and admitted to these crimes. Sassoon has been careful to note that this was all done at Bankman-Fried’s direction, and she has made use of every document she could find to establish that. Ellison testified that Bankman-Fried was always trying to avoid leaving a paper trail: “Sam always directed us to be careful about putting things in writing and not to put in words things that would get us in legal trouble.” Still, there were so many documents, and the prosecution has focused on those that are difficult to dispute.
The most bizarre part of the trial came in the late morning during a discussion about $150 million in bribes Alameda Research had allegedly paid to Chinese officials to get about $1 billion of its funds off Chinese exchanges. What makes it strange is that Bankman-Fried was charged with bribery in a separate case but not this one. (Judge Kaplan allowed the testimony so Ellison could give examples of how close she and Bankman-Fried had become.)
Alameda’s tactics to retrieve the funds included creating accounts using IDs from Thai prostitutes in order to trade against the frozen accounts. (It’s not clear how or why their names were used. The explanation of the scheme was convoluted and didn’t make much sense. And the scheme didn’t work). Ultimately, Alameda paid the bribes but did so over the strenuous objection of one trader, Handi Yang, whose father was a Chinese government official, Ellison said. “At one point, Handi was talking a lot and wouldn’t be quiet and let other people talk, even after Sam had asked her a couple of times, so eventually he yelled at her to shut the fuck up,” Ellison testified. Yang quit soon after. The way this was all talked about internally was illuminating. “Did Handi’s father immediately turn us in or something?” another Alameda executive asked in a chat. Bankman-Fried responded, “LOL.”
And, of course, there was documentation. Ellison had created a document called “notable/idiosyncratic PNL stuff,” which she shared with Bankman-Fried (“PNL” was shorthand for “profits and losses”). One line item on it: “-$150 million for the thing.” The so-called thing was, Ellison said, the alleged bribes. When Sassoon asked why she wrote down the bribe using coded language, Ellison replied, “Because I thought it might leak. It could eventually be used against us in a court case.”
