The Revelations
Jurors attending the trial of cryptocurrency mogul Sam Bankman-Fried were presented with a shocking revelation on Thursday as they listened to a recorded conversation involving Caroline Ellison, the former Chief Executive of Bankman-Fried’s Alameda Research hedge fund. In this audio clip, Ellison disclosed that Bankman-Fried had sanctioned using customer funds from his FTX cryptocurrency exchange to settle the fund’s outstanding loans. This controversial revelation was made during an “all hands” meeting of Alameda staff on November 9, 2022.
The Loan Recall Dilemma
As the recording played, Ellison explained, “With crypto being down … most of Alameda’s loans got called,” and went on to reveal that “in order to meet those loan recalls, we ended up borrowing a bunch of funds on FTX.” When pressed by an employee in the recording about who specifically authorized the use of customer funds, Ellison responded, “Sam … I guess.”
The Prosecution’s Case
Prosecutors used this audio evidence while questioning Christian Drappi, a former Alameda trader, about the meeting. Caroline Ellison, also known as Bankman-Fried’s former girlfriend and confidante, had previously testified on the seventh day of the trial, admitting her role in what prosecutors argue was a multibillion-dollar fraud orchestrated by Bankman-Fried at FTX and Alameda. Both companies now find themselves bankrupt.
Sam Bankman-Fried’s Defense
Sam Bankman-Fried, aged 31, has pleaded not guilty to two counts of fraud and five counts of conspiracy. Despite operational mistakes at FTX, he maintains that he never intended to misappropriate funds. His defense emphasizes that he was not involved in any fraudulent activities.
Witnesses for the Prosecution
Caroline Ellison, a 28-year-old Stanford University graduate who took charge of Alameda in 2021, is one of three former members of Bankman-Fried’s inner circle who have pleaded guilty to fraud charges and agreed to cooperate with the Manhattan U.S. Attorney’s office. Over three days on the stand, Ellison disclosed that Alameda had used $10 billion in FTX customer funds to pay off debts and make investments.
Uncovering a Potential Weakness
During the cross-examination, defense lawyer Mark Cohen raised a crucial question, asking Ellison whether she had learned about an investigation into FTX before or after the “all hands” meeting. She stated she did not recall being aware of the probe before the meeting. This could undermine the defense’s argument that her testimony was tailored to implicate her boss and secure leniency for herself.
An Emotional Testimony
During cross-examination, Cohen aimed to demonstrate that Ellison ran Alameda, albeit with less appetite for risk than Bankman-Fried. On the stand, Ellison shared that she became more ambitious after joining Alameda and oversaw various aspects of the firm’s operations. However, she emphasized that she ultimately deferred to Bankman-Fried’s judgment.
The Fallout
Jurors were presented with a memo in which Ellison analyzed weaknesses at Alameda, including her assessment that she and her former co-chief executive, Sam Trabucco, did not push employees hard enough. She admitted, “Trabucco and I weren’t as good managers or leaders as we could be.” Ellison revealed through tears that she had lived in “dread” fearing the truth would come out, and the ultimate collapse of FTX last year brought an “overwhelming feeling of relief.”
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