Caroline Ellison, the former girlfriend and business partner of FTX founder Sam Bankman-Fried, took the stand on Monday as a key witness for the prosecution in his fraud trial. She testified that Bankman-Fried was the mastermind behind a scheme that defrauded customers of the crypto exchange, investors in his hedge fund Alameda Research, and lenders who provided credit to the firm.
Ellison, who pleaded guilty to two counts of wire fraud and multiple financial conspiracy charges in December 2022, said that Bankman-Fried “directed me to commit these crimes”. She said that he instructed her to use FTX customer funds to cover Alameda’s losses, to lie about the relationship between the two entities, and to provide false financial statements to lenders.
She also said that she was in an on-and-off romantic relationship with Bankman-Fried, which was a source of stress for both of them. She said that they lived and worked together in a mansion in the Bahamas, along with other FTX executives, where they managed the operations of the exchange and the hedge fund.
FTX collapsed after crypto market crash
FTX was once one of the largest crypto platforms in the world, where users could buy and trade digital currencies. It collapsed in November 2022, after a market crash that wiped out billions of dollars in value from cryptocurrencies. FTX filed for bankruptcy, reporting that more than $8 billion was missing from its accounts.
Prosecutors allege that Bankman-Fried stole billions from FTX customers via Alameda, which had a special account at the exchange that allowed it to withdraw virtually unlimited funds. They claim that he used the money to buy property, make political donations, and fund Alameda’s risky bets in crypto.
When Alameda faced financial troubles in 2022, prosecutors say that Bankman-Fried directed Ellison to tap FTX customer funds to repay its debts. They also accuse him of creating a fake cryptocurrency called FTT, which he used to manipulate the market and hide his losses.
Bankman-Fried faces seven counts of fraud and conspiracy charges, which carry a maximum sentence of 200 years in prison. He has pleaded not guilty and denied any wrongdoing.
Defense tries to discredit Ellison
Bankman-Fried’s defense team has tried to portray Ellison as a scorned lover and an incompetent businesswoman, who is cooperating with the government in exchange for a reduced sentence. They have questioned her credibility and motives, and suggested that she was responsible for Alameda’s failures.
They have also argued that Alameda’s relationship with FTX was legitimate and transparent, and that it helped to facilitate trading on the platform. They have claimed that Bankman-Fried was not aware of the extent of FTX’s financial problems, and that he tried to protect Alameda from the market downturn.
The defense has also challenged the evidence presented by the prosecution, such as emails, text messages, and bank records, saying that they were taken out of context or manipulated.
The trial is expected to last for several weeks, and will feature testimony from other former FTX and Alameda employees, as well as experts and regulators. The jury will have to decide whether Bankman-Fried was a visionary entrepreneur or a cunning fraudster.
