Caroline Ellison testifies about alleged FTX bribes to China and calls SBF’s ‘eccentric’ look carefully crafted

Wearing what seemed to be the same gray blazer as on Tuesday, Caroline Ellison, testifying against her former boss and former boyfriend, Sam Bankman-Fried, in his federal fraud trial, dropped a lot of information on Wednesday: the alleged “Thai prostitutes” that FTX created accounts in the names of, as it tried to free up funds frozen by Chinese government officials, and the “bribe” she said it paid to those officials; what she described as Bankman-Fried intentionally dressing “sloppily” and resisting cutting his mop of curls as part of a careful image of an eccentric founder, and even believing his messy hair led to higher bonuses for him at a former employer.

Her testimony also included the “constant state of dread” Ellison says she experienced once she knew—and took part in covering up—the fact that Alameda Research, the hedge fund Bankman-Fried owned and she was CEO of, was taking customer funds from the FTX cryptocurrency exchange; Bankman-Fried’s alleged belief that Saudi prince Mohammed bin Salman would provide a hail-Mary investment at the last minute; the fake balance sheets that Ellison created for Alameda lenders, misleading them about billions that Alameda owed to FTX—and about the $5 billion that she says it had lent to Bankman-Fried and others; plus, the habit she and Bankman-Fried had, when they dated, of sharing Google docs with thoughts and analyses of their troubled relationship. She also appeared to have left the door open for the defense.

“A constant state of dread”

In the afternoon, Ellison at one point held back tears, sniffling, and with her voice rising in pitch and tightening, she described the day in early November 2022 when she realized the game was up, and she’d have to reveal that Alameda had been taking FTX customer funds to cover its expenses and investments. “That was overall the worst week of my life,” she said. “This had been something I had been trying to keep secret for the past several months.” She added, “I felt a sense of relief that I didn’t have to lie anymore,” as she dabbed her nose with a tissue from a box that a courtroom staff member placed next to her.

Ellison described feeling increasingly frantic as she realized the hole that Alameda and FTX were in back in June 2022. After a decline in crypto prices, lenders demanded repayment of their loans to Alameda. “I was very stressed out; we were talking about billions of dollars,” she said. “We’d have to be taking money from FTX customers because Alameda had lost too much to be able to pay the lenders back.

“Every day, I was worrying about the possibility of customer withdrawals from FTX, and this getting out and the people that could be hurt by that,” she said, adding that she knew if a large number of FTX customers decided to withdraw their money all at once—which occurred in November 2022, leading to FTX’s and Alameda’s implosion—that Alameda couldn’t pay. Though she discussed with Bankman-Fried the $10 billion Alameda had taken from FTX customers in June 2022, she testified that Bankman-Fried told her to keep repaying loans that Alameda owed, and continued to make venture investments via Alameda (thus increasing Alameda’s debt to FTX customers) rather than repaying the customer deposits taken from FTX. “I was mostly concerned that if anyone would find out, it would all come crashing down,” she said. Indeed, in fall 2022, with the money that Alameda had taken from FTX even higher, Bankman-Fried was considering buying Snapchat, she said.

Despite the eye-glazing display of spreadsheets and excerpts from Signal chats that the prosecution showed during the day-and-a-half of Ellison’s direct testimony, none showed Bankman-Fried obviously telling Ellison to commit crimes. Most of his responses were anodyne, if juvenile, like Bankman-Fried’s “lol” response when an executive joked about what Ellison said she believed was a bribe paid to Chinese officials, or his “oof” when another executive warned, in November 2022, that customer withdrawals on FTX were occurring at the rate of $120 million an hour. (Ellison’s response to that news: a sad smiley face. “I was terrified,” she said.)

A cultivated image of an “eccentric founder”

Ellison offered other tantalizing bits of information on Wednesday.

She and Bankman-Fried, who dated on and off during much of the time that Ellison worked for and served as CEO of Alameda, often exchanged Google documents with thoughts on their relationship, she said. The tenor of her analysis was that “she was “unhappy with our relationship” and “how our relationship affected me at work.” Ellison testified, “It made me feel bad; it made me feel like sort of an unequal partner in our relationship.”

She also claimed that Bankman-Fried took care to present himself as he did, refusing to cut his curly hair, for instance (he felt he’d gotten higher bonuses at Jane Street, where he’d also worked prior to FTX, “because of his hair,” she testified) and trying to “cultivate an image of himself as a very smart, competent, somewhat eccentric founder,” who was dressed “sloppily,” she said.

She discussed $1 billion in Alameda assets that had been frozen on a Chinese exchange during what she believed was a Chinese-government investigation into a third-party trader. Alameda paid, with Bankman-Fried’s knowledge, “what I believe was a large bribe to Chinese officials to get” that money unlocked in 2021 she said. Before paying the officials a figure she estimated at around $150 million, one executive tried getting the money unfrozen by creating accounts on the exchange in the names “of people who I believe were Thai prostitutes,” Ellison said.

When Bankman-Fried wrote to Ellison that author Michael Lewis, whose recent book about Bankman-Fried has drawn criticism for avoiding discussion of Bankman-Fried’s alleged criminal activity, was visiting the Bahamas in February 2022 to profile Bankman-Fried, Ellison wrote that her instinct was to stay “under the radar.”

“Same, except exactly the opposite,” Bankman-Fried replied.

A potential opening for the defense

While Ellison’s testimony was full of juicy tidbits, she left an obvious opening for the defense—one that, at least in initial questioning at the end of the day Wednesday, they didn’t seem to be taking. Ellison described over and over again how Bankman-Fried had “directed” her to do what she did with regard to Alameda taking FTX customers’ funds—the heart of the fraud case against Bankman-Fried—and lying about it. The obvious problem, and where the defense could make inroads, is there’s so far no written record of those directions, nor of many of the allegations Ellison made against Bankman-Fried. He had warned that writing things down “could eventually be used against us in a court case,” she testified, explaining that he said anything sensitive should be “on Signal, in person, or not at all.”

But with little in writing, there’s a potential angle for Bankman-Fried’s lawyers. They might point out, for instance, that Ellison, far from being an ingenue, was a Stanford math whiz who’d been a trader at the prestigious quant firm Jane Street and who received a $20 million bonus from Alameda in 2021—so perhaps had her own reasons for covering up Alameda’s actions. The other obvious question: If she knew as far back as June 2022 that Alameda was doing wrong by using FTX’s customer funds, why didn’t she quit or blow the whistle on the company? Why did she wait until after FTX and Alameda declared bankruptcy in November 2022, after customers demanded their money back from FTX, and FTX and Alameda didn’t have the money to pay them? And why did she wait until after the FBI had raided her parents’ house, where she was staying after the FTX/Alameda collapse, and took her journal, her phone, and her computer, to meet with prosecutors about her crimes, as she testified that she had done? Ellison, along with two other top executives at FTX, is testifying under a cooperation agreement, in the hopes of getting a lighter sentence; she has pleaded guilty to seven counts of fraud.

Instead, defense attorney Mark Cohen seemed to be getting as entangled in dull details as his colleague Christian Everdell, who handled the cross-examination of other witnesses, opening his questioning with minutae about the labeling of Alameda sub-accounts. It was so confounding that prosecutor Danielle Sassoon interrupted with an “Objection, your honor, this is confusing,” and Judge Lewis A. Kaplan cut off the trial day ahead of schedule. “It’s been a long day,” Judge Kaplan said.

Cohen is expected to continue cross-examination of Ellison on Thursday.