Caroline Ellison, saying Sam Bankman-Fried corrupted her values, found relief when truth came out

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Caroline Ellison, former CEO of Alameda Research founded by Sam Bankman-Fried, exits Manhattan federal court after testifying, Tuesday, Oct. 10, 2023, in New York. (AP Photo/Eduardo Munoz Alvarez)

NEW YORKSam Bankman-Fried's former top executive, testifying in Manhattan federal court Wednesday, blamed the FTX founder for corrupting her values so she could lie and steal and got emotional when describing the cryptocurrency empire's final days, saying the collapse of his businesses resulted in a “relief that I didn't have to lie anymore.”

Caroline Ellison, who eventually was made chief executive of Bankman-Fried's cryptocurrency hedge fund, Alameda Research, blamed the man she was entwined with romantically for several years since 2018 for creating justifications so that she could do things that she now admits were wrong and illegal.

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Testifying for a second day, she recalled that Bankman-Fried said he wanted to do the greatest good for the most people and that rules like “don't lie” or “don't steal” must sometimes be set aside, effectively that the ends justified the means.

Assistant U.S. Attorney Danielle Sassoon asked Ellison how she was affected by Bankman-Fried's philosophy.

“I think it made me more willing to do things like lie and steal over time,” she said.

Ellison spent much of the last two days walking the jury through how she, at Bankman-Fried’s direction, repeatedly had to tap into the customer deposits at FTX to solve problems at the hedge fund or at the exchange. FTX deposits would be withdrawn to pay for new investments or political donations, or to hide steep losses on Alameda’s balance sheet, she testified. All of this was done at the direction of Bankman-Fried.

All the while, Bankman-Fried put on a public veneer of being a good steward of cryptocurrency markets, cultivating relationships with politicians and the public. Ellison testified that Bankman-Fried once described his then-unkept hair as “valuable” to his image, and deliberately drove a Toyota Corolla to appear modest.

After several hours on the witness stand, Ellison got choked up as she described the final days of FTX and Alameda, saying that the early November period before the businesses filed for bankruptcy “was overall the worst week of my life.”

Still, she said she felt bad for “all the people harmed” when there wasn't enough money left for all of FTX's customers and Alameda's lenders.

When the end arrived, Ellison said it left her with a “sense of relief that I didn't have to lie anymore.”

Alameda was seen as a dumping ground for the problems of FTX and Bankman-Fried, and its fuel was FTX customer money. When FTX lost hundreds of millions of dollars on a cryptocurrency known as Mobilecoin due to failures of FTX’s systems, the losses were moved onto Alameda’s balance sheet.

Some of the more surprising testimony from Ellison came as she described what she said was a large bribe of over $100 million that was paid to Chinese officials to get them to free up $1 billion that was frozen in 2021 in cryptocurrency exchanges in China because of a money laundering investigation of someone who had once been an Alameda customer.

She said FTX and Alameda executives tried hiring a lawyer in China to negotiate the release of the funds and tried to siphon away the $1 billion through accounts set up in the names of “Thai prostitutes” before finally settling on the bribery scheme.

“Sam initially said no, but eventually changed his mind,” Ellison said. The funds were eventually released. While the payments came out of Alameda's accounts, the funds ultimately came from FTX customer deposits.

Bankman-Fried was charged earlier this year with conspiracy to violate the anti-bribery provisions of the Foreign Corrupt Practices Act in connection with what prosecutors said was a $40 million bribe, but the charge was withdrawn because Bahamian authorities had not approved it as part of Bankman-Fried’s extradition.

Ellison revealed that she had to doctor balance sheets to try to hide that Alameda was borrowing about $10 billion from FTX customers in June 2022, when the cryptocurrency market was falling dramatically and some lenders were demanding that Alameda return their investments in full. She said she once created seven different balance sheets after Bankman-Fried directed her to find ways to conceal things that might look bad to Alameda's lenders.

“I didn’t really want to be dishonest, but I also didn’t want them to know the truth,” Ellison said.

She said a few years earlier, she would never have believed that she would one day be sending false balance sheets to lenders or misallocating customer money, “but I think it became something I became more comfortable with as I was working there.”

Ellison said she was in a “constant state of dread” at that point, fearful that a rush of customer withdrawals from FTX couldn't be met or that what they had done would become public.

“In June 2022, we were in the bad situation and I was concerned that if anybody found out, it would all come crashing down,” she said.

The crash came last November, when FTX couldn't fulfill a rush of customer withdrawals, forcing it into bankruptcy and prompting investigations by prosecutors and regulators.

“I was terrified,” she said. “This was what I had been worried about the past several months and it was finally happening.”

Ellison, 28, pleaded guilty to fraud charges in December, when Bankman-Fried was extradited to the United States from the Bahamas.

She is expected to be cross-examined on Thursday.

Bankman-Fried, 31, has pleaded not guilty to fraud charges. His lawyers say he was not criminally to blame for what happened to his businesses.

Initially confined to his parents' Palo Alto, California, home under terms of a $250 million bond, Bankman-Fried has been jailed since August after Judge Lewis A. Kaplan concluded that he had tried to improperly influence potential witnesses, including Ellison.


For more AP coverage of Sam Bankman-Fried and FTX:

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