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Caroline Ellison Says She and Sam Bankman-Fried Were ‘Dishonest’


Caroline Ellison, who was a top adviser to the disgraced cryptocurrency executive Sam Bankman-Fried, said on Wednesday that he directed her to send “dishonest” balance sheets to major lenders of the trading firm she ran for him.

In her second day testifying in Mr. Bankman-Fried’s criminal fraud trial, Ms. Ellison said she prepared the phony balance sheets in the summer of 2022 to conceal that the cryptocurrency trading firm, Alameda Research, had borrowed billions of dollars from customers of FTX, the cryptocurrency exchange that Mr. Bankman-Fried also controlled.

“Yes, I did consider it to be dishonest,” said Ms. Ellison, 28, who also dated Mr. Bankman-Fried. She said Alameda’s financial statements “hid the fact we were borrowing $10 billion from FTX customers” and that the firm had no way to pay that money back.

The testimony from Ms. Ellison, the government’s star witness, built on the account she gave in court on Tuesday, when she said Mr. Bankman-Fried had repeatedly instructed her to commit crimes. The trial has become a referendum on the volatile cryptocurrency industry, with Mr. Bankman-Fried emerging as a symbol of its freewheeling, high-risk practices.

In the courtroom, Mr. Bankman-Fried, 31, did not visibly react to Ms. Ellison’s testimony. During a break in proceedings, he glanced at a group of reporters sitting in the gallery, and raised his eyebrows.

Mr. Bankman-Fried has been charged with orchestrating a scheme to turn FTX, which filed for bankruptcy last year, into his personal piggy bank. Authorities contend he stole as much as $10 billion from FTX customers to finance venture capital investments, buy luxury real estate, make campaign donations and pay off lenders to Alameda.

Ms. Ellison, who was Alameda’s chief executive, has admitted that she served as one of Mr. Bankman-Fried’s main accomplices by channeling FTX customer funds into Alameda’s coffers. In December, she pleaded guilty to fraud and conspiracy and agreed to cooperate with prosecutors in return for leniency. Gary Wang and Nishad Singh, two top FTX executives, also pleaded guilty and are cooperating with the government.

Mr. Bankman-Fried, who has pleaded not guilty, could face what would amount to a life sentence in prison if he is convicted.

Of Mr. Bankman-Fried’s top advisers, Ms. Ellison has faced by far the most scrutiny. She and Mr. Bankman-Fried dated on and off while FTX grew into a $32 billion behemoth. On Tuesday, Ms. Ellison recounted intimate details of their relationship, including the tensions that it caused at work.

When she returned to the stand on Wednesday, Ms. Ellison told jurors that FTX’s finances began falling apart in spring 2022 when the crypto market crashed.

Ms. Ellison said she kept detailed spreadsheets that showed just how much Alameda owed its lenders and the extent of its reliance on FTX customers to pay down those loans in the worst-case scenario. She said she shared her analysis with Mr. Bankman-Fried.

The worst case scenario happened in June 2022, when many of Alameda’s lenders began asking for their money back. Alameda’s own crypto assets had plunged in value during the market downturn, meaning the firm had little way to pay back lenders, forcing it to use FTX customer money.

“I was in sort of a constant state of dread at that point,” Ms. Ellison testified. She said that she was concerned that if the use of FTX customer funds became public, “everything would come crashing down.”

Mr. Bankman-Fried directed her to tap FTX customer funds to repay Alameda’s lenders and was fully supportive of the idea, she said. Ms. Ellison said she followed the instructions even though “I knew it was wrong.”

To conceal Alameda’s fragile financial state, Ms. Ellison said Mr. Bankman-Fried had told her to give one of the firm’s biggest lenders — a crypto firm called Genesis — a misleading balance sheet in summer 2022.

“I didn’t want to be dishonest, but I also didn’t want them to know the truth,” she said. Alameda would have gone bankrupt if it defaulted on its loans, she said, and using FTX customer funds gave it a chance to replace that money without anyone finding out.

Ms. Ellison said she and Mr. Bankman-Fried had been concerned that if they gave Genesis an accurate balance sheet that showed Alameda owed $9 billion to FTX for its customer borrowing, it might become public and destabilize Alameda and FTX.

At “Sam’s direction,” she said, she sent the misleading balance sheet to Genesis. She testified that she sent similar “dishonest” balance sheets to other lenders before FTX’s collapse.

During a heated conversation with Mr. Bankman-Fried in August 2022, she broke down and cried when he blamed her for Alameda’s financial troubles, she testified. He accused her of not taking enough measures earlier in the year to reduce Alameda’s trading risks in the crypto market.

”He was speaking loudly and strongly,” she said. “I got very upset, started crying and I had trouble continuing the conversation.”



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