Caroline Ellison set to testify as key witness against Bankman-Fried

Caroline Ellison, federal prosecutors’ star witness against former cryptocurrency mogul Sam Bankman-Fried, is expected to take the stand on Tuesday to potentially testify in the weeks-long criminal trial.

As the chief executive of Bankman-Fried’s hedge fund and his sometime romantic partner, Ellison played an integral role in his crypto empire and is poised to provide jurors an insider’s perspective on what the government’s prosecution will do in the biggest trial in history. Says one of financial fraud.

His testimony follows testimony from two other Bankman-Fried confidants and top lieutenants who told jurors last week that the executive perpetrated a massive fraud on customers of his crypto trading platform FTX. Adam Yedidia, a college friend of Bankman-Fried who joined FTX as a software developer, said he resigned after the company’s conduct was revealed. And Gary Wang, who has also pleaded guilty to financial crimes as FTX’s chief technology officer, testified that Bankman-Fried stole $8 billion from clients and publicly lied about it.

Ellison pleaded guilty in December to seven counts, including wire fraud and securities fraud, and agreed to cooperate with prosecutors in hopes of getting a lighter sentence. She said she took part in the scheme central to prosecutors’ case, defrauding FTX clients by using their money to repay loans to her hedge fund, Alameda Research.

“I’m really sorry for what I did,” Ellison said as she appeared in Manhattan federal court in December to enter her guilty plea. “I knew it was wrong.”

Bankman-Fried faces widespread allegations that she funneled billions of dollars into FTX client funds without her knowledge, making risky investments, purchasing luxury real estate, issuing massive loans to her inner circle, and donating millions of dollars to politicians of both parties. Looted.

If convicted, he could face decades in prison. He has pleaded not guilty.

Prosecutors argue that Ellison played a key role in Bankman-Fried’s alleged crimes. Nathan Rehn, an assistant U.S. attorney who gave the government’s opening statement last week, said Bankman-Fried installed him as a “front” over Alameda while she continued to work behind the scenes.

Defense lawyers presented a different version of events. He partially blamed Ellison for the implosion of crypto firms by failing to heed Bankman-Fried’s warning to position Alameda for a potential decline in the price of crypto assets.

As a witness, the Stanford-educated mathematician brings a fascinating mix of personal and professional insight into Bankman-Fried’s conduct, said former federal prosecutor Adam Kamenstein.

“She’s going to establish that Sam not only knew what was going on but that he was lying about it,” Kamenstein said. “This game is about to end.”

Bankman-Fried and Ellison first met when they both worked at Jane Street Capital, a proprietary investment firm in New York City. Bankman-Fried left her job to found Alameda in 2017, and Ellison joined her the following year. He promoted him to co-chief executive of the firm and later sole CEO in 2021, while he retained majority ownership of the fund.

But Ellison had deep doubts about her abilities as a leader—anxiety heightened by her on-again, off-again romantic relationship with Bankman-Fried, according to private accounts that Bankman-Fried later published. Leaked to the New York Times. That leak led to Judge Lewis A. Kaplan revoked Bankman-Fried’s bail, which had allowed her to remain under house arrest at her parents’ home in Palo Alto, California. He has been imprisoned in Brooklyn jail since then.

In her plea, Ellison said she knew since 2019 that Alameda had “backdoor” access to FTX client funds, effectively giving the firm an “unlimited line of credit without the need to post collateral.” .

He also discussed Alameda’s many large, risky bets in venture deals and personal loans to FTX executives, and said these were financed with “several billions of dollars worth” of loans from outside lenders. When those creditors got their money back, Bankman-Fried and her team used FTX client funds to pay them back, he said.

Ellison said she worked with Bankman-Fried and others to lie to Alameda’s lenders about its soundness, including falsifying some financial statements. And at the direction of Bankman-Fried, she secretly worked to increase the market value of FTT – a cryptocurrency issued by FTX and used by Alameda to maintain its balance sheet – to those lenders who had access to the firm’s financial instruments. To improve health appearance, prosecutors say.

Throughout his tenure, Ellison kept detailed records of the state of the business and the management efforts of Bankman-Fried and his closest advisors as the enterprise began to deteriorate amid a widespread industry recession in 2022.

“He took notes in meetings with his co-conspirators in which they discussed, among other things, Alameda’s financial health and her liabilities to FTX,” prosecutors wrote in an August court filing outlining that evidence. According to the filing, his records included a list titled “Things Sam Is Freaking Out About”, which named Alameda’s trading position, bad press regarding entanglements between FTX and Alameda, and fundraising.

Ellison will also likely offer a way out of the business’s catastrophic collapse in early November last year. As FTX faced a solvency crisis, a large number of customers were trying to withdraw their deposits and rival exchange Binance was exploring a short-term bid for the company, Ellison had to give a tearful explanation to Alameda employees. As obtained from the recording of the meeting. Prosecutors.

“Almeida borrowed a large amount of money on FTX to repay its creditors,” he said. “I think, mostly I want to say, like, I’m sorry. It really sucks.”

When asked by an employee who called to collect an FTX customer’s money, he said, “Um…Sam, I think.”

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