Oct 10, 2023 - Economy

Key witness in trial, Caroline Ellison, says SBF was always in charge

Two people in suits stand on either side of a young woman seeking to conceal her face.

Caroline Ellison, former CEO of Alameda Research, center, arrives at court in New York Tuesday. Photo: Yuki Iwamura/Getty Images

Former Alameda Research CEO Caroline Ellison hasn't finished testifying yet, but the government seems intent to show that founder Sam Bankman-Fried (SBF) was always in charge of both her company and his crypto exchange, FTX.

Why it matters: For the prosecution to stick, the government needs to show that the defendant knew what he was doing and that what he was doing was wrong.

  • Ellison, as both a longtime executive in Bankman-Fried's companies and his former romantic partner, has probably been the most hotly anticipated witness in the case.
  • Her testimony followed FTX and Alameda co-founder Gary Wang.

Catch up fast: The government has leveled multiple charges of federal crimes against the man once thought of as the richest person under 30-years old.

  • Ellison is a cooperating witness who has pled guilty to multiple crimes in conspiracy with SBF. She awaits sentencing.

What they're saying: The witness testified that a romance began between her and the defendant in summer 2020, and that he told her his ambitions included becoming the U.S. President.

Be smart: At issue in the case is Alameda's use of FTX customer deposits both to make trades on the exchange, to make investments off the exchange, trade on other venues and to back ventures like SBF's aggressive political contributions.

  • Whether or not SBF knowingly directed his subordinates to use customer funds in fraudulent ways is crucial to the state proving the first two counts: wire fraud against customers and conspiracy to commit wire fraud against customers.
  • Even after she assumed executive roles at Alameda, Ellison told the jury that the transition was mostly for appearances.
  • "For any major decisions, I would always run them by Sam," she said.

Zoom in: Much of the direct examination from Assistant U.S. Attorney Danielle Sassoon concerned decisions that SBF was either party to, or that were made at his direction.

  • Ellison testified that the line of credit Alameda could use on FTX customer deposits was set up from the start of FTX.
  • "My impression was that it was unlimited," she told Sassoon.
  • She said she believed that the funds borrowed were customer funds — and not FTX investor money nor FTX profits — for two reasons. First, sometimes they would borrow specific cryptocurrencies she knew wouldn't be on FTX balance sheets.
  • Second, because the amounts borrowed were simply too large to have been covered by other sources.

The intrigue: Early on, because SBF was the CEO as Ellison began using the line of credit, she left the worrying about doing so to him. However, as a trader on other exchanges it made her uneasy.

  • "I was somewhat concerned because I thought it was something customers weren't aware of," she said.
  • To her knowledge, SBF never disclosed the practice to investors, customers or FTX's auditors.

Flashback: The first dramatic instance of a large borrow against customers for use off the exchange, she said, happened when SBF directed her and then trader Sam Trabucco to borrow funds to buy out Binance.

  • Binance was one of FTX's earliest investors. It cost FTX $2.1 billion to get its rival exchange off its cap table.
  • Ellison pointed out that it cost them more to buy Binance out than FTX had just raised in its Series B, led by Lightspeed Capital.

The bottom line: "I took away the general impression that [SBF] saw Alameda's line of credit as a general backstop source, whenever we needed funds," she said.

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