Alameda Research co-Chief Executive Officer Caroline Ellison took the stand for a second day on Wednesday in the trial of Sam Bankman-Fried, co-founder of crypto exchange FTX. Ellison, who also had an on-and-off romantic relationship with Bankman-Fried, is the most important of the government’s three star witnesses.
(Bloomberg) — Alameda Research co-Chief Executive Officer Caroline Ellison took the stand for a second day on Wednesday in the trial of Sam Bankman-Fried, co-founder of crypto exchange FTX. Ellison, who also had an on-and-off romantic relationship with Bankman-Fried, is the most important of the government’s three star witnesses.
In her first day of testimony Tuesday, Ellison detailed how Bankman-Fried directed her to orchestrate a massive fraud at FTX and Alameda. Concurring with FTX co-founder Gary Wang, who also was a government witness, Ellison said Bankman-Fried was ultimately responsible for the misuse of FTX customer funds by both companies.
Ellison, 28, pleaded guilty to seven felony counts in December. Bankman-Fried, meanwhile, has denied all allegations against him.
Read: Bankman-Fried Knew of Alameda Risks, Ex-Girlfriend Testifies (1)
Here’s the latest from court (all times are NY):
SBF Attitude Made Ellison More Willing to ‘Lie and Steal’ (11:30 a.m.)
Bankman-Fried’s philosophy was that as a “utilitarian,” he didn’t believe in the ways that people tried to justify rules, such as those against lying and stealing, Ellison said.
“He thought the only moral rule that mattered was doing whatever would maximize the utility,” Ellison said, referring to whatever would create the greatest amount of good.
That attitude in turn “made me more willing to do things like lie and steal,” she said. The philosophical approach known as utilitarianism is similar to some of the arguments that propelled the Effective Altruism movement, of which Bankman-Fried was a visible proponent.
“When I started working at Alameda I don’t think I would have believed if you told me I would be sending false balance sheets to our lenders or taking customer money, but over time it was something I felt more comfortable with,” Ellison added.
Jurors Pay Close Attention to Documents; Scattered Laughter Over ‘Borrows’ (11:15 a.m.)
Despite a numbers-heavy morning of testimony, jurors appeared to have been paying close attention to Ellison and the documents shown by prosecutors. There was scattered laughter in the gallery when Ellison said she had called the money Alameda had borrowed from FTX as “borrows” because she didn’t want to say something explicit like “customer money.”
Ellison, wearing a dark suit, white blouse and black skirt, reentered the courtroom after a break.
Genesis Received Balance Sheet Called ‘Alternative 7’ (11:00 a.m.)
One balance sheet that Bankman-Fried ended up choosing for Ellison for one lender, Genesis, was known as “Alternative 7.” An entry on the balance sheet for the amount Alameda had borrowed from FTX was removed.
The effect was that it looked like the loans were safer than they actually were, Ellison said. Ultimately, Alameda’s liabilities went down from $15 billion on its original balance sheet to around $10 billion on the Alternative 7 version.
Ellison said she knew that FTX executives and entities didn’t have the money to repay Alameda what it had lent out, as those funds had been invested into various things.
Ellison Prepared Seven Balance Sheets at SBF’s Direction (10:35 a.m.)
As crypto prices spiraled and Alameda’s loans were being called in June 2022, Ellison said she was mostly concerned that someone would find out about Alameda and FTX’s situation and “it would all come crashing down.”
Bankman-Fried and Ellison discussed Alameda’s balance sheet, which showed that the business had borrowed around $10 billion from FTX and had loaned around $5 billion to FTX executives and affiliated entities. “Overall it showed that Alameda was in a very risky position,” she said.
At Bankman-Fried’s direction, she prepared seven different versions of Alameda’s balance sheet to potentially show to lenders, fearing that the real version would lead customers to withdraw money.
“He suggested I should prepare some alternative ways of presenting the information and send it to him,” she said. “I understood him to be directing me to come up with ways to conceal things in our balance sheet we both agreed would look bad.”
Alameda Borrowed $13 Billion from FTX Customers by June 2022 (10:15 a.m.)
Ellison shared an updated balance sheet with Bankman-Fried in mid-June 2022, a period that she described as “a time of crisis for Alameda.”
By that time, Alameda had borrowed around $13 billion from FTX customers, she estimated, in addition to having $1.3 billion in open-term loans from third-party lenders like Genesis. Around $3 billion of its borrowing from FTX was still stored on the crypto exchange.
“I understood that he was telling me to borrow money from our FTX line of credit to repay loans when they were recalled,” Ellison said.
Ellison ‘Stressed Out’ Over Alameda Losses (9:50 a.m.)
Everyone in the courtroom rose as jurors entered and Ellison took her seat on the stand. Prosecutors picked up with Tuesday’s testimony about events in May 2022, when crypto prices began to fall after the collapse of the TerraUSD stablecoin and its sister token Luna.
The market crash made Alameda’s assets depreciate significantly since the company held most of its value in cryptocurrencies, Ellison said, though the firm’s day-to-day trading at that time was still profitable.
Alameda lenders like Genesis Trading began to call Alameda’s loans in mid-June, Ellison said – loans that it was obligated to repay because they were open-term. Bankman-Fried used messaging platforms like Slack and Telegram to communicate with Alameda’s lenders, with the jury shown a chat log from one such conversation where Genesis requested the return of $400 million in loans.
“I was very stressed out,” Ellison said. “We were talking about billions of dollars. I knew Alameda had lost a lot of money in the cryptocurrency downturn.”
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