FTX Founder Sam Bankman-Fried Accused Of Inducing Criminal Behavior By Caroline Ellison

The trial of Sam Bankman-Fried (SBF), the founder of FTX, has entered its second week, with key witnesses closely associated with the bankrupt exchange testifying against him in court. 

Today, Caroline Ellison, Bankman-Fried’s ex-girlfriend and former head of Alameda Research, FTX’s trading arm, brought serious allegations in the courtroom. 

Trial Reveals FTX-Alameda Connection In Fund Misappropriation Case

According to Bloomberg, during the trial, defense lawyer Mark Cohen, in his opening statement, partially attributed the collapse of FTX to Ellison’s failure to hedge Alameda’s risky cryptocurrency bets in 2022. 

However, Ellison admitted to being aware that FTX utilized customer funds to support Alameda, further stating that she, Bankman-Fried, and others conspired to deceive lenders and conceal the true relationship between FTX and Alameda.

Ellison revealed in her testimony that they had taken approximately $14 billion, some of which was later repaid. Caroline stated that Alameda had borrowed billions of dollars from FTX customers and used it for its investments and to settle debts with lenders. 

Notably, Ellison admitted to participating in fraudulent activities, asserting that Bankman-Fried, as the CEO and owner of Alameda, directed her to commit these crimes.

Furthermore, Ellison disclosed that Alameda had once been the sole market maker on FTX but accounted for only 2% of the trading volume at the time of the trial. 

Ellison explained that Alameda started borrowing money when it lacked sufficient funds, even borrowing coins that FTX did not possess. These actions exceeded the total revenue and fundraising of FTX. 

Moreover, Ellison expressed concern over customers’ lack of awareness regarding these activities, to which Bankman-Fried assured her that Alameda’s credit line would go unnoticed in an audit.

Additionally, Ellison testified about Bankman-Fried’s involvement in various financial transactions, including the proposal to purchase a $2 billion FTX equity share held by Binance. 

Caroline claimed that Bankman-Fried directed Alameda to use approximately $1 billion from its line of credit from FTX to complete the purchase. Ellison also revealed that Alameda primarily relied on loans from third-party crypto lending desk Genesis for funding in 2021.

FTT Token Distribution Raises Questions

Regarding FTT, the token associated with FTX, Ellison stated that Bankman-Fried and others on the FTX business development team created it to raise funds similar to Binance’s BNB token. 

A significant proportion of the initial distribution of FTT went to Alameda, estimated to be between 60% and 70%. Ellison testified that Alameda acquired the tokens for free, while the remaining percentage was sold privately to investors and employees.

The trial has provided insights into Bankman-Fried’s alleged involvement in Alameda’s operations, contradicting his public statements of stepping away from the firm. 

As the trial progresses, the testimonies of key witnesses, including Ellison, will play a vital role in determining the outcome.

Caroline Ellison’s sentencing will occur after the trial’s conclusion against Bankman-Fried. Suppose prosecutors find that she has fulfilled the conditions of her plea agreement, which includes providing truthful testimony against Bankman-Fried. In that case, they will file a crucial document called a “5K letter” detailing her cooperation. Ellison hopes that her cooperation will lead to a significantly reduced sentence.

Ellison’s testimony marks the third instance of a former close friend and business associate testifying for the prosecution, following Adam Yedidia, a former software developer of the company and Massachusetts Institute of Technology (MIT) classmate, and Gary Wang, a former math camp pal, MIT friend, and FTX co-founder. 

Featured image from Shutterstock, chart from TradingView.com