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Sam Bankman-Fried directed colleagues to create seven “alternative” balance sheets for Alameda Research, some of which disguised billions of dollars of kickbacks to FTX executives, according to testimony from Caroline Ellison, the former chief executive of the exchange’s trading arm.
The 28-year-old, who ran FTX affiliate Alameda until its collapse in November 2022, said she had been ordered that year to cover up how the business was “funnelling” almost $4.6bn to Bankman-Fried and senior staffers, as well as the fact that the trading group was “borrowing $10bn from FTX customers”.
A version of Alameda’s accounts that made its “assets look larger” was provided to crypto lender Genesis, which was calling in loans amid a sharp downturn in the sector, Ellison added during her testimony in Bankman-Fried’s criminal trial in Manhattan. The court was shown the spreadsheet, and a line that had previously contained a reference to stolen customer funds, entitled “FTX borrows”, had been deleted. Loans that had been provided to FTX executives and partly invested into start-ups were also obscured.
FTX collapsed months later after a multibillion-dollar hole in its balance sheet — largely caused by withdrawals caused by secret lending to Alameda — was exposed. Genesis’s lending unit went bankrupt in January 2023, owing creditors more than $3bn.
Ellison, who pleaded guilty to fraud last year, is the star witness in the trial against Bankman-Fried, who faces decades in prison if convicted.
Questioned by prosecutors on Wednesday, Ellison, who for a period had dated Bankman-Fried, said she “did consider [forging the balance sheets] to be dishonest” and was “in a state of dread” after sending them to Genesis.
“I was mostly concerned that if anyone would find out everything would come crashing down,” she said of the disguised loans to FTX executives and the secret use by Alameda of billions of dollars of customer funds.
Ellison, who began testifying on Tuesday, has painted the former tycoon as the orchestrator of a scheme that allowed Alameda to gamble with billions of dollars of FTX customer money, hiding the arrangement from investors, journalists and the public.
Ellison also implicated the former crypto tycoon in a Chinese bribery scandal. She testified that in 2021, Bankman-Fried ordered $150mn to be paid to officials to release roughly $1bn in funds held on two Chinese crypto exchanges, which had been frozen as part of an investigation into money laundering.
She said the move was taken after attempts to limit the damage by counter-trading using accounts in the name of “Thai prostitutes” failed.
When a colleague whose father was a Chinese government official raised objections, Bankman-Fried “yelled at her to shut the fuck up”, Ellison said.
In her own contemporaneous notes, which were entered into evidence, Ellison referred to the relevant transactions as “the thing”, which she said was because she “did not want to put in writing that we had paid . . . bribes”.
That reticence came after Bankman-Fried had repeatedly urged his colleagues to use ephemeral messaging, in order to avoid “legal trouble”, Ellison said.
“Sam directed us to use the disappearing messages setting on our Signal . . . he said that we should be very careful what we put in writing,” she added.
In August of 2022, as Alameda’s liabilities grew, Ellison said Bankman-Fried blamed her for not adequately hedging the company’s investments, saying it was “a big mistake and that it was my fault”.
“I got very upset, I started crying and I had trouble finishing the conversation,” Ellison recalled when asked about the meeting.
Bankman-Fried has pleaded not guilty. His lawyers are set to question Ellison later on Wednesday.
Ellison also testified to Bankman-Fried’s moral compass, claiming he “said he was a utilitarian and he believed that the way people tried to justify rules like ‘don’t lie’ and ‘don’t steal’ didn’t work”.
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