Caroline Ellison, the former girlfriend and top lieutenant of Sam Bankman-Fried, admitted during the FTX founder's criminal trial that she and other executives committed crimes at the now-bankrupt crypto empire. Ellison blamed her part in the alleged fraud on Bankman-Fried.
Ellison, who was head of FTX's sister hedge fund Alameda Research at the time of the exchange's collapse, took the stand as the prosecution's star witness on Tuesday. Months ago, she pleaded guilty to multiple felonies in connection with the case and agreed to cooperate with the government.
Ellison testified that during her tenure as Alameda CEO, she, Bankman-Fried and others together committed fraud, money laundering and other offenses in defrauding FTX's customers and investors as well as Alameda's lenders.
When asked directly how Bankman-Fried was involved, she told the court, "He was originally the CEO of Alameda and then the owner of Alameda, and he directed me to commit these crimes."
Ellison admitted that billions of dollars in FTX customers' funds were funneled to Alameda to be used for the hedge fund's investments and to repay its debts, acknowledging, "We had access to an essentially unlimited line of credit" from the exchange.
The former Alameda CEO also admitted to sending doctored balance sheets to lenders at Bankman-Fried's direction, which she said made the hedge fund appear less risky than it truly was.
During her testimony, Ellison recalled her history with the former crypto king and their on-again, off-again romance.
Ellison said she met Bankman-Fried when she was an intern at New York-based trading firm Jane Street Capital, where he was a trader at the time. She said Bankman-Fried left shortly after she was promoted to a full-time trader at Jane Street, then approached her a few months later about becoming a trader at Alameda, which he had just launched.
Ellison began working at Alameda in March 2018, when Bankman-Fried was CEO at the time, and said she learned shortly after starting there that the company was in bad shape, with investors hit with deep losses, lenders pulling out and the workforce leaving in droves.
By fall of 2018, Bankman-Fried and Ellison began sleeping together, Ellison recalled, and said they began a romantic relationship in the summer of 2020.
She said that when Alameda's lenders starting pulling out, Bankman-Fried's top priority was to obtain more loans for investments, acquisitions and trading, that FTX would a "good source of capital." That's when he set up a system for Alameda to withdraw funds from FTX without collateral.
Ellison told the court she never felt equipped to be CEO of Alameda, but Bankman-Fried assured her she was capable and elevated her to the position anyway. She became co-CEO of the company with Sam Trabucco in October 2021, and the next month, she and Bankman-Fried began dating again. Ellison became sole CEO in August 2022 when Trabucco stepped down.
Ellison reported directly to Bankman-Fried and recalled expressing concerns to him several times about risks the company was taking on.
She said she approached him in May 2022 with a spreadsheet she had created that laid out the numbers and told him that she had "worries and questions," to which he replied, "Yup, and could get worse."