SBF trial: Inside the defense's strategy against star witness Caroline Ellison
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Caroline Ellison arrives at federal court in New York Wednesday. Photo: Yuki Iwamura/Bloomberg via Getty Images
The defense did its best to diminish Caroline Ellison as a prosecution witness during cross-examination Thursday in the trial of Sam Bankman-Fried.
Why it matters: Ellison's testimony that SBF directed the undisclosed borrowing of $10 billion in FTX customer funds by its sister trading firm is crucial to the prosecution's case against him.
- Ellison, the former CEO of that trading firm, Alameda Research, has pled guilty to multiple related crimes in a cooperation agreement with the government.
The big picture: The defense seems to be trying to do two things: discredit Ellison's testimony that she was a reluctant participant in a fraud and establish the idea for the jury that she was less than competent at the head of Alameda.
- That strategy seems intended to support SBF's prior claims that sloppy risk controls and mismanagement by Alameda were the reasons for the loss of customer funds on the exchange.
Between the lines: The defense seemed to have three lines of questioning.
- First, it showed Ellison an upbeat memo she sent to staff while CEO of Alameda in August 2022. She answered that it did not reflect how she felt about the trading firm at the time.
- "I would say I was misleading them about my true feelings about Alameda as stated in this document," she said.
Second, the defense noted that SBF wanted Alameda to cooperate more with Modulo Capital, a hedge fund in which he had invested $400 million.
- Defense attorney Mark Cohen asked Ellison, "Didn't part of you want to crush them?" She replied, "Yeah, I remember having feelings like that."
Of note: The hedge fund was founded by a former romantic partner of SBF.
Finally, during the cross-examination of Christian Drappi, a software developer at Alameda, the defense played an audio clip in an effort to make Ellison seem flippant. It was from a Nov. 9 Alameda staff meeting, in which she admitted her company had been using FTX customer money.
- At the end of the meeting, a staffer thanks her for being honest. She laughs nervously and says, "It was fun."
Be smart: On the question of Ellison's competence — maybe she was, maybe she wasn't. But that doesn't seem to have much bearing on the question of fraud.
- Ellison testified that Alameda's unique line of credit — using FTX customer funds — went back to the very beginning of FTX, well before trouble in the crypto markets triggered Alameda's liquidity crisis.
- Alameda could only use the funds if someone at FTX gave her access to them, and SBF owned FTX.
The intrigue: Ellison also testified Thursday that four years or so ago, she disagreed with SBF about the wisdom of launching that crypto exchange.
Go deeper: The trial of Sam Bankman-Fried: Key players
