Caroline Ellison, the former chief executive officer of Sam Bankman-Fried's hedge fund, testified on Tuesday that the former crypto mogul directed her and others to defraud customers of his FTX exchange by taking their money without their knowledge.
Ellison, who said she previously dated Bankman-Fried, depicted her former boss as an ambitious young man who had no qualms about sharing misleading financial information with lenders and thought he could one day become U.S. president.
Ellison said the hedge fund, Alameda Research, took about $10 billion in FTX customer funds to repay its debts and make investments. The fund gained the money through a $65 billion line of credit it had on the exchange, and from funds FTX customers deposited into an Alameda bank account when FTX lacked its own account.
"He was the one who set up these systems that allowed Alameda to take the money and he was the one who directed us to take customer money to repay our loans," Ellison said.
The testimony by Ellison, 28, was keenly awaited. She is one of three ex-members of the 31-year-old former billionaire's inner circle who have pleaded guilty to fraud charges and agreed to cooperate with the Manhattan U.S. Attorney's office.
Prosecutors say Bankman-Fried plundered billions in customer funds to prop up Alameda, buy real estate and donate more than $100 million to U.S. political campaigns before FTX declared bankruptcy in November 2022 following a collapse that shocked financial markets and left his reputation in tatters.
Bankman-Fried has pleaded not guilty to two counts of fraud and five counts of conspiracy, and has argued that while he made mistakes running FTX, he never intended to steal funds.
In his opening statement last week, defense lawyer Mark Cohen told jurors to question whether cooperating witnesses like Ellison were putting a new, nefarious spin on old decisions by Bankman-Fried which they had originally agreed with.
Gary Wang, FTX's former technology chief, testified that Bankman-Fried falsely tweeted that FTX was "fine" in November as the exchange faced surging demand for withdrawals. A third cooperating witness, former FTX engineering chief Nishad Singh, is also expected to testify at the trial, which could last up to six weeks.
Presidential ambitions
Ellison testified that she met Bankman-Fried while both were working at Jane Street, a Wall Street trading firm. Bankman-Fried left in 2017 to found Alameda, and Ellison followed when he offered her a job as a trader.
"He was very ambitious," Ellison told the court.
She said Bankman-Fried viewed political donations as a relatively inexpensive way to amass power, and even believed there was a 5 percent chance he could become president himself.
"He said he thought it was very effective that you could get very high returns in terms of influence by spending relatively small amounts of money," she said, adding that he had donated $10 million to President Joe Biden's campaign.
Cohen in his opening statement sought to pin some of the blame for the collapse of FTX and Alameda onto Ellison, saying Bankman-Fried had told her to hedge Alameda's bets but that she did not.
In testimony that could undermine that argument, Ellison said she always consulted Bankman-Fried on big decisions and always deferred to him.
"He was the person I officially reported to, he owns the company, and he was the one who set my compensation and had the ability to fire me if he wanted," she said.
While Bankman-Fried has written blog posts and granted interviews to reporters since his December 2022 arrest, Ellison has maintained a low profile since she pleaded guilty that same month.
In July, the New York Times published a story citing Ellison's private writings from before FTX's collapse in which she described feeling overwhelmed at work and hurt by a breakup with Bankman-Fried. After defense lawyers acknowledged that Bankman-Fried had shared the writings with a Times reporter, U.S. District Judge Lewis Kaplan revoked his $250 million bail and sent him to jail for probable witness-tampering.
(Reporting by Luc Cohen and Jody Godoy in New York; editing by Noeleen Walder, Nick Zieminski, and Matthew Lewis)