Sam Bankman-Fried’s lawyers to cross-examine Caroline Ellison in fraud trial

Caroline Ellison’s stunning testimony at Sam Bankman-Fried’s trial on billion-dollar fraud charges enters its third day Thursday, with cross-examination beginning in earnest.

Ellison, 28, who was CEO of the hedge fund Alameda Research and Bankman-Fried’s sometimes-girlfriend, is the prosecution’s star witness at his Manhattan federal court trial. Bankman-Fried, 31, faces seven counts on fraud and conspiracy charges relating to his management of the cryptocurrency exchange FTX. He has pleaded not guilty.

Bankman-Fried’s attorneys have indicated in previous hearings that they intend to pursue questions that might undermine Ellison, depicting her as a jilted ex and a witless businesswoman. The defense asked other witnesses about a request from Bankman-Fried for Ellison to hedge Alameda’s financial positions against market downturns that she did not fulfill.

Ellison on Wednesday provided a detailed chronology of Alameda’s shaky inner-workings, deeply intertwined with FTX, both of which came crashing down after crypto dipped in May 2022, weighed down by a $10bn deficit.

While CEO, Ellison had been worried because Alameda – largely funded by loans – would be dealt a death blow if the lenders decided to collect, and they did. Alameda found itself billions of dollars short. The hedge fund illegally used funds from FTX customers to repay the debts without notifying them, which was done at Bankman-Fried’s direction, according to Ellison.

In her testimony, Ellison went into detail about her and Bankman-Fried’s dark relationship, describing how the entanglement saddened her and negatively affected her work.

“I often shared feelings about being unhappy with our relationship” in messages sent to Bankman-Fried via Google Docs, she said. When the crypto crash began, the two had broken up, Ellison said, and she had been avoiding speaking to him in spite of running businesses together.

Bankman-Fried blamed her for Alameda’s downfall, Ellison said Wednesday. In August 2022, months after they had split, she and Bankman-Fried were having a business conversation in the study at their sprawling $40m Bahamas penthouse, which they shared with other FTX and hedge fund employees.

“We initially started by talking about Alameda’s balance sheet, and then Sam started saying … that it was a big mistake, and that it was my fault, and that I was largely responsible for the financial situation Alameda found itself in,” Ellison said. She added, however, that she remembered Bankman-Fried controlled the majority of Alameda’s investment decisions.

Weeping on the witness stand, she also described how the deception weighed on her as the months wore on – what happened if people found out that FTX customer funds were propping up the ailing Alameda? What happened if too many FTX customers withdrew their money at once – only to find they couldn’t actually collect?

When FTX and Alameda did collapse in November of 2022, she felt relieved, she said Wednesday.

“I had a lot of mood swings during that week and a lot of different feelings, but one of the feelings I had was an overwhelming feeling of relief,” Ellison testified. “This was kind of something I’d been dreading for so long … and I just, I felt a sense of relief that I didn’t have to lie anymore ... that I could take responsibility.”

Ellison has pleaded guilty to wire fraud and conspiracy charges for her role in FTX and Alameda’s collapse. FTX co-founder Gary Wang agreed to a similar plea deal and testified against Bankman-Fried last week.