The fraud trial of Sam Bankman-Fried, the founder and former CEO of crypto exchange FTX, continues to unfold with the testimony of Caroline Ellison, the former CEO of Alameda Research. Ellison testified in federal court on Wednesday that Bankman-Fried had instructed her to manipulate balance sheets in order to conceal billions of missing dollars from lenders. She admitted that she knew this was wrong but followed the orders nonetheless.
According to Ellison, Alameda had already borrowed approximately $10 billion from FTX and had issued loans worth around $5 billion to FTX executives and affiliated entities. The situation became increasingly dire as crypto markets plummeted in the spring of 2022, prompting lenders to demand the repayment of billions in loans. In an attempt to keep up with the repayments, Bankman-Fried allegedly instructed Ellison to use funds from customer accounts in FTX.
Ellison expressed her concerns that if the truth about Alameda’s financial position, particularly its heavy borrowing from FTX, became public knowledge, it could lead to more lenders demanding their money back and FTX customers withdrawing their funds. To present a more positive picture, she prepared seven different balance sheets, and Bankman-Fried selected one to send to a major lender that had requested it.
This testimony is crucial for the prosecution’s case as it paints Bankman-Fried as the ultimate decision-maker for both Alameda and FTX, despite their appearance as separate entities. Other former high-level employees have also testified about the extensive financial intertwining between the two companies.
Bankman-Fried, who has pleaded not guilty to seven counts of fraud and conspiracy, has not yet presented his defense or cross-examined Ellison, considered the prosecution’s star witness. It is uncertain whether he plans to testify. Ellison, on the other hand, has pleaded guilty as part of a deal with prosecutors in the hopes of receiving a more lenient sentence.
The prosecution alleges that Bankman-Fried embezzled billions of dollars from FTX customer funds to cover Alameda’s losses and enrich himself and others. They claim that he used the money to purchase luxury real estate and make substantial donations to US political campaigns. Bankman-Fried and other executives are also accused of deceiving investors and customers by setting up a secret borrowing facility between Alameda and FTX.
Evidence brought forth by the prosecution suggests that FTX was primarily created in 2019 to provide Bankman-Fried with a substantial source of capital beyond third-party loans relied on by Alameda. The trial has also revealed personal aspects of Bankman-Fried’s mindset, such as his fixation on getting regulators to crack down on FTX’s biggest rival, Binance, and his interest in acquiring the parent company of Snapchat.
The trial is ongoing, and further updates are expected as the case unfolds.