Former crypto hedge fund Alameda Research CEO Caroline Ellison took the stand on Wednesday as a witness in the fraud trial of Sam Bankman-Fried, the former co-head of Alameda Research and CEO of FTX. Ellison testified that Bankman-Fried instructed her to falsify the firm’s financial statements in order to keep a major lender from demanding repayment during the cryptocurrency market downturn in 2022.
According to Ellison, as some lenders began demanding repayment, Bankman-Fried directed her to find “alternative ways” to present the firm’s liabilities in order to prevent more loans from becoming due. She stated that she understood him to be directing her to conceal negative elements in the firm’s balance sheet.
Ellison further testified that Bankman-Fried had her send lender Genesis Global Capital a balance sheet that concealed the fact that Alameda had borrowed around $10 billion in customer funds from the FTX cryptocurrency exchange. Prosecutors allege that Bankman-Fried used customer funds to prop up Alameda, purchase real estate, and make political campaign donations, prior to FTX declaring bankruptcy in November 2022.
Earlier in the trial, Ellison revealed that Bankman-Fried instructed her to draw from the fund’s line of credit on FTX to repay loans in June 2022. As the value of Alameda’s assets dropped, Ellison expressed her concern that the funds used to repay loans were ultimately coming from FTX customers, putting her in a constant state of worry about customer withdrawals.
Ellison is one of three former members of Bankman-Fried’s inner circle who have pleaded guilty to fraud charges and agreed to cooperate with prosecutors. She testified that Bankman-Fried considered himself to be risk-neutral, whereas most people in the industry saw themselves as risk-averse.
Bankman-Fried has pleaded not guilty to fraud and conspiracy charges, arguing that while he made mistakes in running FTX, he did not intend to steal funds. Defense lawyer Mark Cohen suggested that cooperating witnesses like Ellison were putting a nefarious spin on old decisions by Bankman-Fried that they had originally agreed with.
The trial, which began last week, is expected to last up to six weeks. Former FTX technology chief Gary Wang and former FTX engineering chief Nishad Singh are also expected to testify as witnesses for the prosecution.
In conclusion, Caroline Ellison’s testimony at Sam Bankman-Fried’s fraud trial has shed light on his alleged instructions to falsify financial statements and conceal liabilities. As the trial continues, further testimonies are expected to provide more insight into the collapse of FTX and the actions of its former CEO.