Caroline Ellison to testify in Bankman-Fried fraud trial

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Caroline Ellison to testify in Bankman-Fried fraud trial

Caroline Ellison, federal prosecutors' Star Witness against former cryptocurrency mogul Sam Bankman-Fried, is expected to take the stand Tuesday to provide potentially make-or-break testimony in the week-old criminal trial. On weekends, you get a curated selection of the top 10 stories from the magazine in your inbox. Ellison, the chief executive of Bankman-Fried's hedge fund and his sometimes romantic partner, played an essential role in Bankman-Fried's crypto empire and is to provide jurors with an insider's view of what government lawyers call one of the biggest financial frauds in history.

Her testimony followed that of two other Bankman-Fried confidants and top lieutenants who told juryors last week that the executive orchestrated an enormous fraud on customers of FTX, his crypto trading platform. Bankman-Fried's college friend, Adam Yedidia, who joined FTX as a software developer, said he resigned after he caught wind of the conduct. In addition, Gary Wang, who has pleaded guilty to committing financial crimes as FTX's chief tech officer, testified that Bankman-Fried stole 8 billion from customers and publicly lied about it.

In December, Ellison admitted to seven counts, including wire fraud and securities fraud, and agreed to cooperate with prosecutors in expectation of receiving a lighter sentence. She said her involvement in the scheme was central to her case, defrauding FTX customers by using their money to repay debts owed by Bankman-Fried's hedge fund, Alameda Research.

Bankman-Fried and Ellison met in New York City when they worked together at Jane Street Capital, a private investment firm based in New York City. In 2017 Bankman-Fried resigned to join Alameda, recruiting Ellison to join the team the following year. In 2021, she was promoted to co-chief executive and later, sole CEO, while he owned a significant portion of the fund.

But Ellison had deep misgivings about her abilities as a leader - anxiety that was compounded by her on-again, off-again romantic relationship with Bankman-Fried, according to private writings that Bankman-Fried later leaked to the New York Times. That leak led Judge Lewis A. Kaplan to revoke the bail that had enabled Bankman-Fried to live under house arrest in his parents' home in Palo Alto, Calif. He has been in a Brooklyn jail since being released, his lawyer said.

She also mentioned Alameda's many large and risky bets in venture deals as well as personal loans to FTX executives, saying those were financed with loans from external lenders 'worth several billion dollars'. Bankman-Fried and his team tapped FTX customer funds to pay them back, she said.

She said she worked with Bankman-Fried and others to lie to Alameda's lenders about its soundness, including by doctoring some financial statements. Bankman-Fried worked secretly to inflate the market price of FTT, a cryptocurrency issued by FTX and utilized by Alameda to prop up its balance sheet, to improve the appearance of the firm's financial health to those lenders, prosecutors said.

She took notes at meetings with her co-conspirators at which she discussed the Financial Health of Alameda and its liabilities to FTX, prosecutors said in an August court filing. A list titled which included Alameda's trading positions, bad press about the entanglement between FTX and Alameda and fundraising, was included, according to the filing.

Ellison is also expected to provide a window into the quick collapse of the business in early November. As FTX faced a resolvency crisis, with a cascade of customers trying to pull their deposits and the rival exchange Binance exploring a short-lived bid for the company, Ellison gathered Alameda employees to offer a tearful explanation, according to a recording of the meeting.