Sam Bankman-Fried Directed Fraud on FTX Customers, Caroline Ellison tells US Jury!

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Caroline Ellison, the former CEO of Sam Bankman-Fried’s hedge fund, testified that Bankman-Fried directed her & others to defraud customers of his FTX exchange. Ellison stated the hedge fund, Alameda Research, took about $10b in FTX customer funds to repay debts & make investments.

Bankman-Fried has pleaded not guilty to fraud charges & conspiracy.
Caroline Ellison, the former CEO of Sam Bankman-Fried’s hedge fund, testified on Tues. that the former crypto mogul directed her & others to defraud customers of his FTX exchange by taking their money without their knowledge.

Dated

Ellison, who revealed that she previously dated Bankman-Fried, depicted her former boss as an ambitious young man who had no issues about sharing misleading financial information with lenders, grew preoccupied with a rivalry with the Binance crypto exchange, & thought he could one day become US president!
Ellison outlined that hedge fund, Alameda Research, took about $10b in FTX customer funds to repay its debts & make investments. The fund gained the money through a $65b line of credit it had on the exchange, & from funds FTX customers deposited into an Alameda bank account when FTX lacked its own account.

Alameda

“He was the one who set up these systems that allowed Alameda to take the money & he was the one who directed us to take customer money to repay our loans,” Ellison outlined during nearly 3 hours of testimony. She is expected to return to the witness stand on Wed.
The testimony by Ellison, 28, was keenly awaited. She is one of 3 ex-members of the 31-year-old former billionaire’s inner circle who have pleaded guilty to fraud charges & agreed to co-operate with the Manhattan US Attorney’s office.

Billions

Prosecutors say Bankman-Fried plundered billions in customer funds to prop up Alameda, buy real estate & donate more than $100m to US political campaigns before FTX declared bankruptcy in Nov. 2022 following a collapse that shocked financial markets & left his reputation ruined.
Bankman-Fried has pleaded not guilty to 2 counts of fraud & 5 counts of conspiracy & has argued that while he made mistakes running FTX, he never intended to steal funds.

Co-operating Witnesses

In his opening statement last week, defence lawyer Mark Cohen told jurors to question whether co-operating witnesses like Ellison were putting a new spin on old decisions by Bankman-Fried with which they had originally agreed.
Gary Wang, FTX’s former technology chief, testified that Bankman-Fried falsely tweeted that FTX was “fine” in Nov. as the exchange faced surging demand for withdrawals.
A 3rd cooperating witness, former FTX engineering chief Nishad Singh, is also expected to testify at the trial, which could last up to 6 weeks.

BINANCE Stake

Ellison explained that Alameda 1st used its FTX line of credit in the summer of 2021, when Bankman-Fried wanted to buy back an equity stake held by rival exchange Binance in FTX. Bankman-Fried had grown concerned that “Binance would do things to mess with FTX,” Ellison stated.

She suggested that she informed Bankman-Fried in a conversation at their offices in Hong Kong, where both FTX & Alameda were based at the time, that Alameda would have to borrow from FTX to buy back the $2b stake.

“He said, ‘That’s OK, I think this is really important, we have to get it done,'” Ellison revealed, as prosecutors displayed a picture of Bankman-Fried with Binance CEO Changpeng Zhao.

Customer Funds

She also revealed Bankman-Fried ultimately used $1 billion in FTX customer funds to buy back the stake.

“It was Sam’s decision,” Ellison alleged.

Binance did not immediately respond to a request for comment. Bankman-Fried observed that Binance offered to take over FTX as it was collapsing in Nov. 2022, but later backed out of the deal.

The US Securities & Exchange Commission has sued Binance & Zhao, alleging that they commingled & diverted customer funds. Binance & Zhao have denied the allegations.

Presidential Ambitions

Ellison testified that she met Bankman-Fried while both were working at Jane Street, a Wall Street trading firm. Bankman-Fried left in 2017 to found Alameda, & Ellison followed when he offered her a job as a trader.

“He was very ambitious,” Ellison told the court.

She explained that Bankman-Fried viewed political donations as a relatively inexpensive way to amass power, & even believed there was a 5% chance he could become President himself.

“He said he thought it was very effective that you could get very high returns in terms of influence by spending relatively small amounts of money,” she outlined, adding that he had donated $10m to US President Joe Biden’s campaign.

Overwhelmed

In July, the New York Times published a story citing Ellison’s private writings from before FTX’s collapse in which she described feeling overwhelmed at work & hurt by a breakup with Bankman-Fried.
After defence lawyers acknowledged that Bankman-Fried had shared the writings with a Times reporter, US District Judge Lewis Kaplan revoked his $250m bail & sent him to jail for probable witness-tampering.

 

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