MANHATTAN (CN) — Lawyers for disgraced cryptocurrency mogul Sam Bankman-Fried on Thursday pinned the blame for the catastrophic financial collapse of the digital finance empire he controlled on the ex-girlfriend he appointed to run his trading firm.
Federal prosecutors have accused Bankman-Fried of fraudulently gambling in his own casino by directing his Alameda Research hedge fund to secretly commingle customers’ deposit funds from his FTX exchange platform as loans for cryptocurrency futures trading on the FTX exchange he also co-founded and controlled.
Bankman-Fried, 31, has pleaded not guilty to federal charges and his defense counsel have laid blame for FTX’s collapse on Caroline Ellison for failing to limit Alameda’s exposure to cryptocurrency’s volatility while the company was taking billions of dollars from FTX customers’ deposits to repay outstanding loans.
Ellison, the 28-year-old tech executive who ran Bankman-Fried’s Alameda Research as co-CEO while intermittently dating him, was questioned by defense lawyers during four hours of cross-examination Thursday, following ten hours direct testimony on Tuesday and Wednesday.
Facing a maximum sentence of up 110 years in prison, Ellison pleaded guilty to all counts of a superseding indictment in secret in December 2022, in the month after FTX’s sudden and spectacular implosion and bankruptcy.
Ellison told Bankman-Fried’s lawyers on Thursday she did not consider Alameda to be a “hedge fund,” as it’s often characterized, and insisted it was a trading firm.
“I would say Sam gave the ultimate direction about what we should do,” she testified Thursday morning regarding Alameda’s asset trading strategies.
Ellison testified earlier in the trial that Bankman-Fried had promoted her from Alameda trader to co-CEO in the summer of 2021, while the pair were broken up in between on-again, off-again periods of dating.
Cohen & Gresser partner Mark Cohen asked Ellison on cross-examination if it was true that his client was absent for an extended gaps while she was the top executive handling day-to-day operations at Alameda.
“There were periods of time when he wasn’t paying much attention to Alameda,” she affirmed.
Explaining bullet points on a list titled “Things Sam is freaking out about”, Ellison testified that Bankman-Fried had considered selling FTX equity shares to Saudi Crown Prince Mohammed bin Salman, but an attempted fundraising trip through the Middle East had not panned out.
Ellison testified she and Sam at time discussed a so-called “Chinese wall” — “an information barrier,” she explained — separating customer data that was shared between Alameda and FTX, including weighing whether or not the two companies should share offices and Signal chats.
Earlier in her testimony, Ellison said Bankman-Fried directed several entities that had Alameda in the name to be renamed “so that their associations with Alameda wasn’t obvious.”
For example, Bankman-Fried purchased shares of Robinhood through entity named Emergent Fidelity Technologies, instead of using a company with an Alameda name.
Ellison testified on Thursday that Bankman-Fried had also made attempts to secure a lifesaving investment capital from billionaire Facebook co-founder Dustin Moskovitz.
Ellison said she “found it difficult to have one-on-one conversations” with Bankman-Fried while they continued working together as business partners at Alameda after they finally broke up as a romantic couple in the spring of 2022.
Following their split, they continued to live and work together in the $35 million Bahamian penthouse they shared with eight other employees of the two intermingled companies.
Ellison testified on redirect on Thursday afternoon that she had attempted to quit Alameda in the summer before the company’s implosion but Bankman-Fried had talked her out of it. “I told Sam I wanted to quit, he told me that I couldn’t, that I was too important to keep at Alameda,” she said. “I trusted his opinion and I didn’t want FTX and Alameda to collapse; and he if thought my resigning might cause that, I didn’t want to do that.”
Recalling the raid of her parents’ house by FBI agents later that year, Ellison disclosed that her new boyfriend, who was present with her during the search, is another former employee of FTX and Alameda.
During her direct questioning by prosecutors on Wednesday, Ellison held back tears as she described experiencing “an overwhelming feeling of relief” when Alameda’s misconduct with FTX customer funds was made public in November 2022.
“This is something I had been dreading for the past several months,” she said choking up. “When the truth finally came out… I felt a sense of relief that I didn’t have to lie anymore.”
Ellison was excused from the witness stand Thursday afternoon, her third day of testimony as a cooperating witness.
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