Star Witness Caroline Ellison says Sam Bankman Fried made ‘terrible mistakes’

Sam Bankman Fried’s lawyer on Thursday sought to undermine the testimony of Carolyn Ellison, the prosecution’s star witness in his criminal fraud trial, as she continued to insist that the former cryptocurrency mogul was behind the misuse of billions of dollars of customer funds on his FTX exchange.

Over the course of about five hours of questioning, Mark Cohen, Mr. Bankman-Fried’s defense attorney, questioned Ms. Ellison about her decision to cooperate with prosecutors in exchange for leniency. He also asked her about a document she sent to employees at Alameda Research, the cryptocurrency trading firm she ran for Mr. Bankman-Fried, that painted a rosier picture of the company’s financial situation than she had described in private.

But Mr. Cohen did not extract any major revelations or inconsistencies from Ms. Ellison, 28, who stood by her previous testimony that she followed Mr. Bankman-Fried’s orders about allowing the Alameda company to profit from FTX clients’ money.

“I think they were terrible mistakes,” she said of Mr. Bankman-Fried’s decisions in the summer of 2022, which ultimately led to the collapse of FTX and Alameda.

Just over a week after Mr. Bankman-Fried’s trial, Ms. Ellison emerged as the strongest witness against him. In her testimony in federal court in Manhattan, she told the jury that Mr. Bankman-Fried, 31, had known for months that Alameda’s finances were in a parlous state and that the company would face intense pressure to repay most of the $10 billion it had. Borrowed from FTX clients.

Mrs. Ellison ran Alameda and dated Mr. Bankman-Fried. After FTX and Alameda failed in November, federal prosecutors accused Mr. Bankman-Fried of transferring billions of dollars in FTX customer deposits to Alameda, then spending the money on political donations, real estate purchases and other ventures. It has become a symbol of arrogance and reckless risk-taking in the cryptocurrency industry.

Ms. Ellison and two other senior FTX executives, Gary Wang and Nishad Singh, later pleaded guilty to fraud and agreed to cooperate with the government.

Ms Ellison, who was on the witness stand for the third day, gave some of the most raw and emotional testimony at the trial. On Wednesday, she held back tears as she described the collapse of Mr. Bankman-Fried’s companies, saying that part of her was relieved that she would no longer have to lie to hide that the Alameda company owed billions of dollars to FTX clients.

Under questioning by Mr. Cohen, Ms. Ellison admitted that she sent a misleading document to Alameda employees last year that presented a more optimistic version of the company’s business performance than what she discussed with Mr. Bankman-Fried.

“Yes, I would say that this document was misleading about the true condition of Alameda,” she testified.

But Ms. Ellison said she did so to keep up Alameda employee morale at a time when the cryptocurrency market was under widespread pressure.

Ms. Ellison also said that after Mr. Bankman-Fried put her in charge of Alameda in 2021, he was not involved in many of the company’s key decisions.

To show that Mr. Bankman-Fried was not fully aware of what was happening in Alameda, Mr. Cohen asked Ms. Ellison about an instance in which she became aware that some FTX customer deposits were arriving in Alameda bank accounts. FTX used Alameda to store client funds before it got its own bank accounts, but it had trouble redirecting those funds.

Ms Ellison said of Mr Bankman-Fried that she did not recall “getting the impression whether he knew about this case or not”. Mr. Cohen noted that this was inconsistent with what she told prosecutors in an earlier interview, when she said Mr. Bankman-Fried may not have been aware of the problem.

Ms. Ellison also said that Mr. Bankman-Fried was more involved in Alameda by the spring of 2022, and that he decided to tap FTX client funds to pay off the company’s commercial lenders.

Under questioning by Mr. Cohen, Ms. Ellison said that despite her concerns, she had not resigned from Alameda. But when the prosecutor questioned her again, she said she had seriously considered resigning in the months before the companies collapsed, and that Mr Bankman-Fried had talked her out of it.

“I trusted his opinion and didn’t want FTX and Alameda to collapse, and if he thought my resignation might cause that, I didn’t want to do it,” she said.

Mr. Cohen also focused on the events surrounding Ms. Ellison’s decision to plead guilty and cooperate with prosecutors and her concerns about Alameda’s use of FTX client funds.

Ms Ellison said FBI agents came to her parents’ home last November after the collapse of FTX and Alameda. Ms. Ellison said agents had a search warrant allowing them to seize the computers of her boyfriend, who was staying with her at the time; Her mother, Sarah Fisher Ellison, is an economist at the Massachusetts Institute of Technology. She did not name her boyfriend but said he worked at Mr. Bankman Fried’s business.

In all, Ms. Ellison said she had about 20 meetings with prosecutors, including one that lasted several hours on Monday, the day before she took the witness stand.

Ms. Ellison also said that despite her concerns about Alameda borrowing billions of dollars of FTX client money, she had never spoken about the matter with anyone other than Mr. Bankman-Fried, Mr. Wang and Mr. Singh.

At times, Ms. Ellison’s testimony this week turned into a war of attrition between Mr. Cohen and prosecutors. The attorneys had several conversations with the judge that the jury could not hear to discuss the admissibility of certain documents.

In one conversation on Wednesday, Assistant US Attorney Danielle Sasson said she noticed that Mr. Bankman-Fried “laughed, visibly shook his head and sneered” at various points during Ms. Ellison’s testimony. Ms. Sassoon expected this to have a “visible effect on her,” according to a transcript of the trial.

Judge Louis A. said: Kaplan, the presiding judge, said he had not seen what Ms. Sassoon indicated, so he would not make any comments to the jury. But the judge asked Mr Bankman-Fried’s lawyers to tell their client privately that if he was making any visible expressions, he should stop.

Christian Drape, a former Alameda developer, took the podium after Ms. Ellison finished her speech Thursday afternoon. During his testimony, the prosecution played an audio recording of an “all-hands meeting” in which Ms. Ellison told Alameda employees about the use of FTX client funds and the imminent collapse of the company.

He said the turn of events had left Mr Darabi “completely shocked”.