Caroline Ellison, the former head of Sam Bankman-Fried’s crypto hedge fund and the government’s star witness in the criminal fraud case against the FTX founder, testified Tuesday that she and her ex-boss defrauded customers, investors and lenders.
“Yes, we did,” Ellison said, when Danielle Sassoon, assistant U.S. attorney, asked if she committed a crime. “I mean Sam and I and others.”
From a courthouse in downtown Manhattan, Ellison then listed her crimes: “fraud, conspiracy to commit fraud and money laundering.”
Ellison, who ran Alameda Research, pleaded guilty in December to two counts of wire fraud, two counts of conspiracy to commit wire fraud, conspiracy to commit commodities fraud, conspiracy to commit securities fraud and conspiracy to commit money laundering. Part of the 28-year-old’s plea deal with the government has involved cooperating with the prosecution’s case against Bankman-Fried.
Ellison’s testimony started at 12:37 p.m. and lasted less than 10 minutes before the court broke for lunch. It resumed at about 2 p.m.
Donning a red dress with a loose gray blazer and glasses, Ellison provided a brief background of how she got to know Bankman-Fried. They met when she was an intern at Jane Street, a proprietary trading firm in New York. They later worked together at Alameda and dated for a couple of years, she said.
Ellison was one of Bankman-Fried’s earliest recruits to Alameda in 2017. Bankman-Fried had reportedly convinced the Stanford graduate to ditch her job at Jane Capital to join Alameda as a trader when the hedge fund was still in its original office in the San Francisco Bay area.
When asked by Sassoon to identify the defendant, Ellison stood up and, for almost 30 seconds, looked around the room. She turned her head all the way to the left to the jury box and back to the right again multiple times before finally identifying Bankman-Fried as sitting “over there and wearing a suit.” The two hadn’t made eye contact when Ellison walked by earlier. Bankman-Fried, who was known for his floppy hair and beach shorts, got a fresh haircut prior to the trial, reportedly from a fellow inmate at the jail in Brooklyn where he has been held since August.
Ellison said Bankman-Fried was the original CEO and owner of Alameda.
“Sam directed me to commit these crimes,” she said. He “directed us to take customer money to pay loans.”
Bankman-Fried, 31, faces seven federal charges, including wire fraud, securities fraud and money laundering, all tied to the collapse of FTX and Alameda late last year. If convicted in the trial that began a week ago, Bankman-Fried could spend his life in prison. He has pleaded not guilty.
Central to the case against Bankman-Fried is the billions of dollars that flowed from customer accounts at FTX to Alameda, which had a massive hole in its balance sheet after the crypto markets turned in 2022.
Ellison said Alameda took several billion dollars from FTX customers and that Bankman-Fried had not only set up a system to steal the funds, but also directed Ellison and others to use customer funds to repay loans in the ballpark of $10 billion.
“We ultimately took around $14 billion, some of which we were able to pay back,” she said. “I sent balance sheets to lenders at the direction of Sam that incorrectly stated Alameda’s assets and liabilities.”
She said the numbers were adjusted to make Alameda look less risky as an investment.
Following lunch recess, Ellison was asked about her relationship with Bankman-Fried. She said that while they started sleeping together from time to time in 2018, not long after she began at Alameda, they began dating in the summer of 2021. The relationship was on-again, off-again until the spring of 2022, when they broke up for good.
Ellison said she quickly discovered after being hired that Alameda was in much worse shape than she’d anticipated. The firm had suffered large losses, lenders had pulled out and many employees had quit.
Regarding the comingling of funds, Ellison said Bankman-Fried was still CEO of Alameda when the practice of funneling money from FTX to the hedge fund began. Ellison said she was under the impression that it was FTX customer money because the sums exceeded the exchange’s profits and the amount of capital it hard raised.
In mid-2021, when FTX bought equity in the company back from rival exchange and early investor Binance, the company used $1 billion in FTX customer money for the transaction, Ellison testified. That followed an in-person conversation between Ellison, Bankman-Fried and Sam Trabucco, Alameda’s co-CEO.
“We don’t really have money for this,” Ellison recalled saying. “We’ll have to borrow from FTX to do it.”
Bankman-Fried told her that was OK because it was important and “we have to get it done,” she said.
WATCH: Caroline Ellison testifies Sam Bankman-Fried directed her to commit crimes