After recounting an alleged bribe from the Chinese government, fake accounts opened in the names of Thai sex workers and multiple versions of falsified balance sheets, Caroline Ellison emerges as the government’s star witness in the criminal trial of Sam Bankman- Fried. The disgraced FTX founder faces seven counts of fraud and conspiracy in the high-profile case.
Ellison, the former CEO of Alameda Research and Bankman-Fried‘s on-and-off girlfriend told the jury Wednesday morning that he cultivated a culture of secrecy within his businesses. She pointed to allegations of missing Signal messages, coded language, and more.
“I was careful not to say anything in overly explicit language,” Ellison said, adding that there was a fear that the written communication could “be used against us in a court case.”
Bankman-Fried told them to use the “New York Times test,” Ellison said, that is, employees were asked to imagine their messages being released on the front page of the paper.
“One example (of when we spoke in code) was when Alameda paid what I believe to be a significant bribe to Chinese officials,” Ellison said.
The bribe, which she later said she thought was in the range of $100 million to $150 million, was apparently used to unblock accounts the exchange had in China on Huobi and OKX which were frozen, blocking approximately $1 billion in assets.
In November 2021, Ellison said that former FTX CEO Ryan Salame asked him to send various assets to wallet addresses, totaling $100 million. After that, their accounts were unfrozen, she testified.
Sam told him that “(David) Ma found a way to unfreeze our accounts,” Ellison said. “All we had to do was send the money.”
After a sidebar discussion initiated by Bankman-Fried’s defense team, Southern District of New York Senior Judge Lewis Kaplan told the jury that Bankman-Fried was not charged with any bribery counts .
A former employee of Ellison, nicknamed “Handi,” was allegedly involved in discussions about how to unfreeze their accounts because her father was a Chinese government official.
Ellison said Handi opposed “the David Ma way,” but when she objected, Bankman-Fried told her to “shut up.”
Months later, after Handi left, Bankman-Fried told Ellison and his former employee Sam Trabuco in a conversation with Signal that Handi was “antagonistic,” Ellison said. Handi was trying to get a severance package, Ellison added.
“Did Handi’s father immediately report us or something,” Trabuco said in the Signal post, a screenshot of which the government filed into evidence.
“lol,” Bankman-Fried replied in the chat.
Bankman-Fried and his team also considered releasing the funds by using other accounts to attempt money transfers. These accounts were created under the names of “Thai prostitutes,” according to Ellison. She said Salame, who pleaded guilty last month to two unrelated charges, was the one who made the connection to the prostitutes.
Ellison also noted that as crypto market conditions deteriorated over the summer of 2022, Alameda lenders began calling in their loans. Genesis in particular requested $500 million in June 2022, according to a Signal post filed as evidence.
Ellison created seven different “alternative” versions of Alameda’s actual toll, under Bankman-Fried’s direction, she said. Falsified versions were sent to Genesis and others.
In reality, Alameda’s net asset value was around $6 billion, although Ellison pointed out that given the amount of FTT they held, that figure was likely inflated. The trading company’s total liabilities were $14.9 billion, Ellison said.
When Genesis asked to see a checkup, Ellison said she was “very stressed.”
“I wanted to reassure them…but the fact was…we had borrowed more from FTX customers,” she added.
In the version received by Genesis, Alameda’s net asset value was $6 billion and its total liabilities were $10 billion, given that Ellison said it wiped out Alameda’s $9.9 billion loan from FTX in the falsified version. The FTX loan, as Ellison was repeatedly asked to clarify, was FTX’s customer money.
“I didn’t want to be dishonest, but I also didn’t want them to know the truth,” Ellison said of lying to lenders.
On the subject of customer deposits, the government published a June 27, 2022 tweet from Bankman-Fried in which he stated: “Security of customer assets should always be paramount. Everything else is secondary. »
Lead prosecutor Danielle Sassoon asked Ellison whether FTX, at the time of this tweet, had enough assets to support its clients.
“No,” Ellison said.
Customers had deposited a total of $15 billion on exchanges, but there were only about $6.8 billion in liquid assets on FTX.
Lots of damning accusations
Ellison’s testimony Wednesday comes after a explosive day in court Tuesdaywhere she supported FTX co-founder Gary Wang’s claims and dropped a few more bombshells.
She told the jury that Alameda made more than $5 billion in personal loans to Bankman-Fried, Wang and Nishad Singh, the company’s former director of engineering.
Additionally, Bankman-Fried knew there was a 100 percent chance that Alameda would default on its loans from third-party creditors if market conditions deteriorated and he continued his multibillion-dollar spending spree. Of course, the government noted this during its examination-in-chief, which is exactly what ultimately happened.
Bankman-Fried was running the show in Alameda, Ellison added Tuesday, noting that “any major decisions” had to be made through her. When she applied for equity in Alameda after becoming CEO of the crypto hedge fund, Bankman-Fried told her “it was too complicated.”
Between Tuesday and Wednesday, Ellison had been on the stand for about four hours. The prosecution told the court on Wednesday afternoon, before the lunch break, that he probably still had an hour and a half of direct examination remaining.
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