Ellison spent more than ten hours testifying during Bankman-Fried’s trial this week, particularly walking through the front doors of the federal courthouse in Manhattan, where she was joined by her lawyers. According to Ellison, she has not seen Bankman Fried since the failure of her cryptocurrency empire in November last year. But their communication eroded even months ago.
In April 2022, their romance ended, and Caroline began avoiding meetings with Bankman-Fried, although they still lived in the same luxury apartment in the Bahamas. Alameda’s increasing commitments with FTX and the breakup made her consider leaving Alameda.
“I feel that neither Trabucco nor I did a great job of pressing things,” she wrote in the document to Bankman-Fried, which was shared as evidence during her cross-examination by defense attorneys.
Another courtroom sketch by Caroline Ellison.
-Ariel Givner, Esq. (@givner ariel) October 11, 2023
Bankman-Fried asked her to stay, saying her departure might spark rumors about Alameda’s financial health, damaging FTX’s credibility. Ellison remained CEO.
Ellison joined Alameda as a trader in 2018. By 2020, she was handling most of the company’s operations, while Bankman-Fried was focusing on its newly launched cryptocurrency exchange FTX. In August 2021, she became co-CEO alongside Sam Trabucco, who resigned a few months later, leaving her in charge of the company. In August 2022, Trabucco officially resigned as co-CEO.
It revealed that Ellison was against the creation of FTX. “I didn’t think I was ambitious before I started at Alameda, but I think I became more ambitious” under the incentive provided by Bankman-Fried, she said.
As CEO, Ellison was responsible for handling Alameda’s cryptocurrency lenders. In mid-2022, after the failure of the Terra ecosystem, the company’s open-term loans reached $1.3 billion. The market decline drained liquidity from crypto assets, prompting Alameda lenders to demand repayment of the loans.
According to Ellison, Bankman Fried ordered her to continue paying creditors via an Alameda line of credit with FTX. In other words, Alameda will use FTX clients’ assets to repay cryptocurrency lenders. At that time, the credit line with the stock exchange reached $13 billion.
As the lenders demanded repayment of the loans and Alameda’s balance sheets, Bankman-Fried suggested to Ellison that “alternative means” be used to present the company’s financial statements. In the following months, Ellison created several additional versions of the balance sheet to deceive creditors.
In early November, an alternative version of Alameda’s balance sheet was leaked. At the time, Ellison was on vacation in Japan, but had to travel to FTX’s Hong Kong office to deal with the company’s crisis.
While the balance sheet data did not reflect the company’s reality, it was enough to spread rumors and spark a bank run on FTX a few days later, exposing an $8 billion gap between the two companies.
Cooperating with the Department of Justice since December, Ellison will soon receive her sentence in connection with the seven counts of fraud and conspiracy to commit fraud with which she is charged.
Carolyn Ellison wasn’t doing a good job leading Alameda’s research in 2022, and she made no secret of it. Portions of her personal notes that prosecutors shared as evidence in the trial of Sam Bankman-Fried revealed details about the company’s business struggles and its CEO’s desire to resign weeks and months before FTX’s collapse.
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