Caroline Ellison, the former co-CEO of Alameda Research, found herself on the witness stand for a second day during the criminal trial of Sam Bankman-Fried, the founder of the defunct cryptocurrency exchange, FTX. She continued to unveil more details about how Alameda and Bankman-Fried were involved in defrauding investors and mishandling customer funds.
Bankman-Fried’s on-again, off-again girlfriend had previously pleaded guilty to criminal charges related to the deception of FTX customers and investors. In her recent testimony, she confessed to misleading lenders by providing balance sheets that downplayed the actual risk associated with Alameda.
During her testimony on Wednesday, she shed further light on the company’s interactions with lenders who had initiated loan recalls due to a downturn in the cryptocurrency market. One key lender, Genesis, a crypto trading service now bankrupt, sought the return of $400 million in loans.
Ellison testified that the head of lending from Genesis had requested an updated balance sheet to assess Alameda’s financial standing.
However, Bankman-Fried resisted this request, insisting that she find alternative ways to present the information. Ellison recalled, “He told me to come up with alternative ways to present the information. He wanted me to conceal things on our balance sheet. So I prepared seven different balance sheets.”
From these options, Bankman-Fried chose a balance sheet that did not disclose Alameda’s debts of approximately $10 billion to FTX customers. This figure later ballooned to $13 billion by September of the preceding year.
Bankman-Fried’s plan to recover funds involved attracting capital from investors, according to Ellison. Notably, a Google document listed the Saudi Crown Prince and Prime Minister, Mohammed Bin Salman, as a primary target. Reports from the previous year had indicated Bankman-Fried’s efforts to secure funding for FTX, including personal visits to the Middle East by October.
The same Google document revealed Bankman-Fried’s interest in encouraging regulatory action against Binance, a rival exchange. The actions of Binance’s CEO, Changpeng Zhao, contributed to FTX’s downfall by triggering a surge in withdrawals and exposing FTX’s shortage of customer funds.
Ellison’s testimony also unveiled the decision to pay bribes to Chinese officials in an attempt to release $1 billion in frozen Alameda funds as part of a money laundering investigation. According to Ellison, Bankman-Fried had claimed that David Ma had found a way to unfreeze their accounts by sending $100 million to specific crypto addresses in November 2021.
An Alameda employee named Handi disagreed with Ma’s decision, but Bankman-Fried dismissed their concerns, instructing Handi to “shut up.”
Notably, the U.S. District Court Judge, Lewis Kaplan, clarified to the jury that Bankman-Fried was not facing charges related to the bribery of Chinese officials but that the information was presented as a motive. The prosecution had initially sought to include violations of the Foreign Corrupt Practices Act but later dropped the bribery charge due to a court ruling that denied the introduction of additional charges related to Bankman-Fried’s arrest in the Bahamas.
The defense had a brief 30-minute window for cross-examination of Ellison before the court adjourned. The cross-examination is scheduled to continue in the next session.