In a gripping courtroom drama, Caroline Ellison, former CEO of Alameda Research, took the witness stand today as a star witness in the trial against alleged crypto fraudster Sam Bankman-Fried.
Ellison delivered a shocking testimony, asserting that Bankman-Fried directed her to engage in criminal activities, further unraveling a complex web of financial misdeeds.
The backdrop of this legal battle is the collapse of the cryptocurrency exchange FTX and its ensuing financial chaos, in which Ellison had previously admitted involvement in fraudulent activities in December.
In a surprising twist, she testified that it was Bankman-Fried who orchestrated the system enabling Alameda to siphon off funds, ultimately implicating him in the web of deceit.
Ellison’s brief 15-minute appearance before the court shed light on the alleged misappropriation of several billion dollars from FTX customers by Alameda Research. She claimed that Alameda had utilized $14 billion worth of FTX customer funds, with $10 billion of that amount allocated to repaying lenders.
The trial reconvened after a lunch break, with Ellison delving into the risk assessments she conducted to navigate Alameda Research’s financial woes. She expressed concerns about the firm’s financial stability, stating that the balance sheet did not inspire confidence in potential lenders.
According to her testimony, Bankman-Fried had suggested incorporating Paper Bird, a company in which he held shares within FTX, into the balance sheet to present a less precarious financial picture.
Notably, Paper Bird Inc. was one of several FTX-owned entities included in the firm’s Chapter 11 bankruptcy protection filing in November 2022. The bankruptcy filing revealed that Paper Bird Inc. owed Alameda Research a staggering $2.3 billion.
During her risk assessment analysis, Ellison indicated that she had estimated Alameda Research’s chances of repaying all its loans during a market downturn to be a mere 30%. Even with access to FTX customer funds, she asserted that the company’s illiquidity, primarily due to $3 billion tied up in venture investments, rendered it incapable of repaying its debts.
Alameda Research, founded by Bankman-Fried, is at the center of the prosecution’s allegations. Prosecutors claim that Bankman-Fried allegedly deceived customers by misappropriating funds from FTX to execute high-stakes trades on behalf of Alameda.
According to Decrypt, Prosecutor Thane Rane, in his opening remarks, contended that despite Ellison’s title as CEO, it was Bankman-Fried who wielded the real power at Alameda, with Ellison serving as a mere facade.
As this legal saga unfolds, it’s evident that the trial will explore not only the financial intricacies but also the personal dynamics at play. Ellison’s past writings, which delve into controversial topics such as race science and polyamory, have come under scrutiny. In private writings, she had even admitted her inability to manage Alameda effectively, according to the New York Times.
Bankman-Fried’s arrest came shortly after the collapse of his crypto empire, FTX, which declared bankruptcy in November, shocking the crypto community. Now, facing seven criminal charges, his trial is anticipated to span six weeks, as the legal system unravels the complex web of alleged crypto fraud and financial misconduct.