Caroline Ellison, former Alameda Research CEO and ex-girlfriend of disgraced FTX founder Sam Bankman-Fried, stunned the jury today in Manhattan Federal Court when she revealed startling claims involving Alameda Research’s ties to international government officials.
Falsifying Balance Sheets and Borrowing from FTX Customers
Taking the stand for the first time yesterday, Ellison admitted to falsifying a number of balance sheets to make investing in the crypto hedge fund seem “less risky than it was and to hide the fact we were borrowing tens of billions of dollars from FTX customers.” Testifying under a cooperation agreement with the US government, Ellison appeared to be remorseful, calling her actions “wrong.”
Moreover, the former Alameda CEO said that she had been left in “a constant state of dread” in the lead-up to FTX’s collapse. By 2022, Alameda Research’s total assets, which were mostly illiquid, totaled $21 billion, while their liabilities were estimated at over $14 billion. Ellison testified that she and Bankman-Fried predicted and analyzed a number of “bad market scenarios” that could tank their crypto empire.
“Every day, I was worrying about the possibility of customer withdrawals and worried about this getting as well as who it would it hurt,”
At one point, Ellison calculated there was a 100% probability they would not be able to repay their loans should the crypto market experience a downturn while they attempted large venture investments. Nonetheless, Bankman-Fried charged on, instructing Ellison to repay their loans using customers’ funds on FTX.
Desperate Attempts to Raise Funds and Suppress Damaging Conversations
With little remaining sources of capital left, Ellison recalled Bankman-Fried attempting to raise funds for his company by selling shares to the Crown Prince of Saudia Arabia, Mohammed bin Salman Al Saud. However, these attempts ultimately proved futile.
Ellison further alleged that Bankman-Fried was concerned about the subject matter of his employees’ conversations coming back to haunt him, even going so far as enabling an automatic deletion feature on their company’s end-to-end encrypted messaging platform, Signal.
“Sensitive conversations were saved for Signal, in-person, or not at all,”
Moreover, she testified that Bankman-Fried instructed that company communication should follow “The New York Times Test,” meaning employees should only communicate information they would be comfortable reading as a headline in the newspaper.
Bribing Chinese Government Officials as a Last Resort
One of the most damning pieces of evidence came when Ellison recalled Bankman-Fried bribing Chinese government officials to unlock Alameda’s frozen trading accounts. These accounts were held on exchanges called OKX and Huobi, with those belonging to Alameda Research holding over $1 billion in assets.
According to Ellison, their bribery came as a last resort after hiring a lawyer who failed to negotiate with several Chinese officials. Following this, they unsuccessfully attempted to use the trading accounts of several Thai prostitutes in order to unlock their funds.
“Shut the f–k up!”
When a trader for Alameda Research attempted to dissuade Bankman-Fried from bribing the Chinese government, the fallen “King of Crypto” yelled at her. Bankman-Fried sat silent in the courtroom, resting his hand slightly over his mouth. Ellison remained somewhat hunched as she calmly continued her testimony.
After a detailed review of Alameda Research’s financial documents, the prosecution announced they were submitting one last balance sheet into evidence. “Microsoft stock must be plunging then,” Kaplan joked.
Having pleaded guilty to seven different fraud charges, Ellison is expected to finish her time on the stand this week. It is currently unclear if Bankman-Fried will testify in his own defense.
