Caroline Ellison, star witness in Bankman-Fried trial, calls FTX collapse a ‘relief’

Caroline Ellison, a confidant of Sam Bankman-Fried, confessed to assisting him in misappropriating billions in FTX customer assets. She testified at his fraud trial on Wednesday, expressing her fear of the truth about the cryptocurrency exchange being revealed. The collapse of the exchange last year brought her an overwhelming sense of relief. Ellison, the former co-chief executive of Bankman-Fried’s cryptocurrency hedge fund Alameda Research, was emotional as she recounted the final days before the exchange declared bankruptcy in November 2022. She expressed deep regret for the harm caused to FTX customers and employees, but the collapse alleviated the dread she had been living with. 'I felt a sense of relief that I didn’t have to lie any more,' she said, tearfully. The courtroom deputy provided Ellison with a box of tissues. Prosecutors allege that Bankman-Fried pillaged billions in customer funds to bolster Alameda, purchase real estate, and donate over US$100 million to US political campaigns. The collapse and subsequent bankruptcy of FTX in November 2022 sent shockwaves through financial markets and tarnished Bankman-Fried’s reputation as a responsible operator in the cryptocurrency industry. Earlier on Wednesday, Ellison testified that Bankman-Fried instructed her to falsify Alameda’s balance sheets to keep lenders at bay during a downturn in cryptocurrency markets in 2022. Balance sheets sent to cryptocurrency lenders, including Genesis Global Capital, concealed that Alameda had borrowed around US$10 billion in FTX customer funds. Ellison, a Stanford University graduate, stated that Bankman-Fried, her former boss and occasional romantic partner, also directed her to draw from the fund’s line of credit on the FTX cryptocurrency exchange to repay loans in June 2022. She 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 US Attorney’s office. Bankman-Fried has pleaded not guilty to two counts of fraud and five counts of conspiracy, arguing that while he made mistakes running FTX, he never intended to steal funds. In his opening statement last week, defence lawyer Mark Cohen urged jurors to question whether cooperating witnesses like Ellison were putting a new, nefarious spin on old decisions by Bankman-Fried which they had originally agreed with. Ellison testified earlier on Wednesday that Bankman-Fried did not subscribe to rules such as 'don’t lie' and 'don’t steal'. The FTX founder described himself as a 'utilitarian' who believed the only rule that mattered was doing the greatest good for the greatest number of people. 'He didn’t think rules like ‘don’t lie’ or ‘don’t steal’ fit into that framework,' she said. Being around that mindset made her more comfortable over time with taking actions at Bankman-Fried’s direction that she knew were wrong. Bankman-Fried also sought to cultivate an image as a 'smart, competent, somewhat eccentric founder' and viewed his low-effort appearance and hairstyle as 'very valuable', she said. As cryptocurrency prices plummeted and the value of Alameda’s assets dropped, Ellison said her awareness that the funds used to repay loans were ultimately coming from FTX customers put her in a 'constant state of dread. ' 'Every day I was worrying about the possibility of customer withdrawals at FTX,' she said. Ellison said she and Bankman-Fried brainstormed multiple ways to support his companies. She said he suggested selling a stake in FTX to Saudi Arabian Crown Prince Mohammed bin Salman, and boosting its market share by getting regulators to 'crack down' on rival cryptocurrency exchange Binance. Ellison said regulators had 'promised' Bankman-Fried that a Binance crackdown was coming but did not elaborate. The US Securities and Exchange Commission sued Binance and its founder Zhao Changpeng in June 2023, alleging that they commingled and diverted customer funds. Binance and Zhao have denied the allegations. Gary Wang, FTX’s former technology chief, testified that Bankman-Fried falsely tweeted that FTX was 'fine' in November as the exchange faced surging demand for withdrawals. A third cooperating witness, former FTX engineering chief Nishad Singh, is also expected to testify at the trial, which could last up to six weeks.