Inside the Collapse: Ex-Girlfriend Testifies about the Fraudulent Downfall of FTX

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Inside the Collapse: Ex-Girlfriend Testifies about the Fraudulent Downfall of FTX

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During Sam Bankman-Fried's fraud trial, Caroline Ellison, who was both his ex-girlfriend and colleague, recounted her feelings of relief when the FTX cryptocurrency exchange collapsed. Ellison, the former CEO of Alameda Research, broke down in tears as she described the final days of FTX during her testimony. She revealed that Bankman-Fried had instructed her to illegally appropriate FTX customers' funds and deceive the company's lenders during the cryptocurrency market crash last year.

Ellison provided an insider's perspective on the collapse of FTX and Alameda, shedding light on the impact of her relationship with Bankman-Fried on both entities. After their relationship ended earlier in 2022, Ellison avoided social interactions and avoided direct conversations with Bankman-Fried when the cryptocurrency crash began in May of the same year. Ellison expressed concern that the market downturn would lead to Alameda's downfall because many lenders had open-term loans, allowing them to demand the return of their funds at any time. With the value of Alameda's crypto assets vanishing, the crash left the hedge fund in a dire situation.

In June, lenders began calling in their loans, leaving Alameda billions of dollars short in repayments. Ellison testified that Bankman-Fried blamed her for the financial catastrophe and verbally lashed out at her in their shared penthouse apartment. She also presented various financial documents, indicating that Alameda owed FTX around $10 billion during the loan recall period. Federal prosecutor Danielle Sassoon questioned Ellison about her mental state when faced with the prospect of repaying loans using nonexistent funds.

To cover the shortfall, Ellison disclosed that Alameda utilized FTX customers' money without their knowledge, a decision she believed was morally wrong. She testified that Bankman-Fried had established a system to transfer FTX customer funds to Alameda for loan payments and investments, all while keeping FTX customers uninformed. When asked about Bankman-Fried's philosophy on rules, Ellison stated that he emphasized the avoidance of lying and stealing but admitted that such moral guidelines did not hold weight under utilitarianism. Bankman-Fried also cautioned employees against creating written records that could land them in legal trouble.

Ellison shared that Bankman-Fried's viewpoint began to influence her own, confessing that she participated in activities such as falsifying balance sheets and stealing from customers, which she would have never imagined doing when she first joined Alameda. She pointed out a Google Doc created during the collapse, with a header expressing anticipation of "bad PR in the next 6 months."

During her testimony, Ellison admitted to committing multiple crimes under Bankman-Fried's direction while working for Alameda. Bankman-Fried himself faces seven fraud and conspiracy charges for allegedly defrauding customers of $10 billion. He has entered a plea of not guilty. Ellison's testimony also unveiled the inner workings of FTX and Bankman-Fried's carefully crafted public image. She revealed that Bankman-Fried cultivated relationships with journalists and maintained a prominent presence on Twitter to portray himself as a highly intelligent, confident, and somewhat unconventional founder. Despite this, Ellison disclosed that Bankman-Fried put little effort into his appearance, often dressing untidily and neglecting to cut his hair.

Ellison and Bankman-Fried had an on-again-off-again romantic relationship since 2018 and resided in a luxurious $40 million penthouse in the Bahamas with other FTX executives at the time of the exchange's collapse. They were provided with 'luxury company cars,' but Bankman-Fried eventually changed his vehicle for public relations purposes. In December 2022, Ellison pleaded guilty to wire fraud and conspiracy charges related to her role in the shocking downfall of FTX and Alameda.