There are a lot of big moments from the FTX trial
Sam Bankman-Fried and his relationship with a Crypto Celebritation: The case against fake balance sheets in the conspiracy to take FTX customer funds
Ellison had given, in her direct testimony, fairly damning evidence tying FTX CEO Sam Bankman-Fried to the conspiracy to take FTX customer funds. There were fake balance sheets, one of which was sent to crypto lender Genesis. The Genesis representative text Ellison to say he spoke to Bankman-Fried and he was aware of the contents of the fake balance sheet. Not good!
Ellison offered some other examples of Bankman-Fried’s apparently casual attitude toward lying. Bankman-Fried first tried using a lawyer to negotiate when Alameda funds got stuck on two Chinese exchanges. When that failed, Alameda tried opening accounts using the IDs of “Thai prostitutes” in order to create transactions that would get the funds back. We didn’t get a lot of detail about that except that it didn’t work, and I nearly expired from curiosity right there in the courtroom.
And as Bankman-Fried’s former girlfriend, she had intimate knowledge of both the company and of the former crypto celebrity who now faces seven criminal charges that could send him to prison for the rest of his life.
FTX customer money was used to plug financial holes at Alameda, and to finance Bankman-Fried’s extravagant lifestyle, and prosecutors are attempting to paint it as fraud because he is justifying the transfer of funds as legitimate loans.
Ellison was convinced to join Bankman-Fried’s investment firm after the defendants started his own, called Alameda Research. Their relationship was not strictly personal.
She was responsible for day to day decisions and responsibilities in Alameda. “But for any major decisions, I would always run them by Sam, and I would always defer to Sam if he thought that we should do something.”
When the prosecution asked her to explain why she was so deferential, Ellison noted there was always a difficult power dynamic between her and Bankman-Fried.
Ellison recalled Bankman-Fried’s affection for games of chance — and his tolerance for risk. She remembered that he once had a plan under which he would lose $10 million if he drew tails in a coin flip, but he would have the chance to win $10 million if he drew heads.
Ellison discovered that the investment would make it more than likely that Alameda would not be able to pay off its loans if all of their loans were called at the same time.
Ellison said that she was stressed and that she talked with Bankman- Fried about the company’s ability to pay back loans.
Ellison said Bankman-Fried directed her to change spreadsheets so that Alameda’s financial picture was more positive and to ignore requests from lenders for additional information.
Ellison created seven different options, one that minimized the size of Alameda’s debt, while Bankman- Fried created a new kind of digital currency called FTT.
As Bankman-Fried and his deputies worked behind the scenes to find ways to pay back billions of dollars in loans owed by Alameda, Bankman-Fried was making public pronouncements that were at odds with what was really happening. On social media, for example, he claimed his businesses were fine.
As panic grew among the top ranks of FTX, Bankman-Fried talked a lot about how he could raise more money from lenders and investors, Ellison testified.
She said Bankman-Fried talked of trying to get money from Mohammed bin Laden while he was alive. She said the plan was to use Saudi Arabia’s money to repay Alameda’s loans. But that funding never materialized.
The day picked up with Ellison discussing May 2022, when crypto markets entered freefall as the Terra/Luna coins collapsed. Amid the chaos, lenders started demanding their funds back. We saw Telegram chats with employees at Genesis, a crypto lender, which was asking Alameda to return its money. There was a tick-tock of Alameda getting its loans called by lenders across the board. Bankman-Fried directed Ellison to repay the loans using FTX customer funds.
Ultimately, however, FTX and Alameda collapsed, and in short order, FTX declared bankruptcy and Bankman-Fried was arrested. Days later, Ellison pleaded guilty to several criminal charges and agreed to cooperate with federal prosecutors in their case against Bankman-Fried.
Ellison said that Alameda transferred $100 million to be paid to the Chinese government officials who were supposed to unfreeze the account.
Ellison described a meeting in which a colleague whose father worked for the Chinese government protested repeatedly. Ellison said Bankman-Fried yelled at the employee to shut up.
Judge Lewis Kaplan, who’s presiding over the trial, allowed the use of that testimony “for limited purposes,” — to demonstrate “the trust and confidence” Ellison and Bankman-Fried had in each other.
Kaplan made it clear to the jurors that the allegations of bribing a foreign official are not one of the charges in the trial. Bankman- Fried will face charges of bribery and bank fraud when a separate trial takes place next year.
Everyone stood and looked at the back of Kaplan’s courtroom, after prosecutors called her to testify. Ellison was taken to the witness stand.
Ellison stood and looked at the room when she was asked if she could identify Sam Bankman-Fried to the jury. It took a short while for her to locate him.
A year ago, Ellison pled guilty to several criminal charges, including counts of fraud and conspiracy, in order to help the U.S. government in the Bankman-Fried case.
The daughter of M.I.T. economists, Ellison was a math major at Stanford University, and in her testimony, she described how she and Bankman-Fried met at the trading firm Jane Street. She was an intern and he was a trader.
In 2018, she and Bankman-Fried “started sleeping together on and off,” Ellison told the court. In the summer of 2020, we started a romantic relationship.
Bankman-Fried Is Not a Customer’s Money, but a Fraudulent Propagation Involving Customer Funds
Over the course of hours of testimony, she described in detail personal and professional ups and downs, and the conspiracy of which she has admitted to being an integral part.
During last year’s melt down, as Alameda Research was collapsing, the CEO held an all-hands meeting to tell staff that they couldn’t afford to pay back deposits from FTX’s customers. When an employee asked Ellison what it would take to use customer funds, Ellison said, “Sam, I guess.”
Ellison’s second day of testimony delved into the collapse of Bankman-Fried’s empire. Though she answered her questions with the attitude of a student trying to get an A in a difficult class, during court sidebars — where the lawyers bickered with each other in front of the judge and out of earshot of the rest of us — she slumped into herself, looking forlorn. She wore a gray blazer over a white v-neck blouse with black dots tucked into a black skirt, and she still didn’t quite summon up the appearance of an executive. That made sense. She made little consequential moves without first consulting Bankman- Fried, according to the text messages we saw.
Ellison knew this likely wasn’t possible. FTX customer funds had been used to pay off those loans, she testified. If a large number of FTX customers withdrew all at once, the exchange wouldn’t have the money. Ellison said that he was stressed out. At that time, I was in a constant state of dread.
Bankman-Fried’s defense lawyers seem to be teeing up the notion that the customer funds were still there, just in an investment portfolio. The problem is that putting those funds in an investment portfolio is still stealing the funds. The exchanges do not lend out customer money. At least, the honest ones don’t.
Ellison said he told her not to put anything in writing that she wouldn’t want to see on the front page of The New York Times. She violated that rule with a set of memos about their relationship. Bankman-Fried leaked them to that paper.
She said he believed in a proactive approach to public relations. He also thought his famously wild hair was “very valuable” and had led to higher bonuses at Jane Street, she testified. In the courtroom, Bankman-Fried visibly shook while she said this. Though Ellison and Bankman-Fried initially had “luxury cars,” Bankman-Fried felt it would be better for his image to drive a Toyota Corolla, so he switched cars.
Ellison said that he had slept on a bean bag in the office. This was thrown into question by Bankman-Fried’s college roommate.
The Problem with Shuttering Alameda: The Story of the Best Moments I’ve Ever Learned about Bankman-Fried
Ellison wrote notes about the problems with shuttering Alameda. Among them? Ellison referred to Alameda as a market making for shitty things and he was doing his job. Alameda was also a backup liquidity provider for FTX.
Bankman- Fried did not want to do it, but he thought it might be a good idea to do it. Instead, Ellison did — writing in her own words a workshopped version of a tweet Bankman-Fried originally wrote, which began, “Heh, I see someone is really trying to FUD us.”
As the collapse happened we saw a text from Ellison. “This is the best mood I’ve been in a year tbh,” Ellison messaged Bankman-Fried. It’s not clear what date the screenshot came from, though Bankman-Fried was the source. Ellison cried as he looked at the messages. That was the worst week of my life, she said. I had a lot of different feelings and moods that week.
One of those feelings was relief. She said the truth was something that had been in her head every day. She didn’t have to lie anymore and the thing she had been preparing for happened. She said she felt “indescribably bad” about all the people “who trusted us that we had betrayed.” A clerk gave her a tissue.
It also suggested something else: the things you put in writing can, potentially, save you. It’s a lot harder to paint Ellison as the sole decision-maker when she’s got contemporaneous evidence that she didn’t make a move without running it by Bankman-Fried.
Barbara Fried engaged the defense lawyer Christian Everdell in an animated conversation during the break after Christian Ellison walked off the stand. Fried, the defendants mother, seemed to have a strong opinion about something. Everdell walked off, and Mark Cohen talked to her for a bit after that.
We’re still in the prosecution’s case. We’ll hear from the defense soon. But nothing they’ve said so far gives me confidence that Bankman-Fried is getting out of this.
Before this case, I had been told that Everdell and Cohen were “workman-like,” which I took to mean that they were unshowy but competent. I now believe that comment was an insult. I live for drama and chaos, and have been waiting for a juicy cross-examination. I’m starting to believe I won’t get one.
Instead, I got a sad trombone. Cohen bored the jury with his disorganized cross-examination. At one point, two different jurors appeared to be asleep.
Midway through the morning I began wondering if there was a mercy rule for cross-examinations. The prosecutor had created an easy-to- Follow narrative by running a direct examination. By contrast, Cohen appeared to be bumbling around, taking up one topic only to abruptly pivot. Sure, we’re still in the prosecution’s case, but Cohen had all night to prepare his lines of questioning.
We established that Bankman-Fried had a much larger appetite for risk than Ellison. I thought perhaps it might be building to something, but this line of questioning was quickly dropped. Ellison avoided stress while Bankman-Fried sought it, as we established that both of them reacted differently to stress and media. Okay?
Alameda accountants had a problem with balance sheets for their companies, and she had been lying to the bankman-Fried
We discovered that there was one accountant at Alameda in 2021, and two more junior accountants were hired in 2022. Apparently, Alameda had a problem with retaining accountants, which didn’t surprise me much; CEOs generally don’t do the balance sheets for their companies. I was ready to hear this be pursued further, but it was dropped as well.
There were rather a lot of sidebars during the cross-examination, to the point that when one occurred, several jurors looked entertained. There were a few yesterday, too, including one in which the prosecution complained that Bankman-Fried was visibly scoffing at Ellison’s answers, according to the court transcript. (I did observe him occasionally shaking his head, and sometimes quivering at points during her testimony, but didn’t have a view of his face.)
Cohen accused Ellison of not taking out a hedge on the risks Alameda was trading during the opening statement. It was stupid when we heard about the hedge in cross-examination. If you want to evaluate the trade itself, be it hedging being long or selling futures, stop. Is she supposed to have taken more customer funds to put on the hedge? Was it the defense that she didn’t take enough? Is that she should have taken them sooner? What the fuck?
When Sassoon got up for a quick redirect, she demolished any points Cohen had attempted to make. After Ellison left the stand and the jurors left the room, I appreciated her cleverness. Cohen had been set a neat little trap by her.
On the direct examination, near the end, Sassoon asked about an Alameda all-hands meeting, without bringing up many specifics. Cohen asked Ellison what topics were talked about in the meeting, but didn’t give details. That opened the door for Sasson on redirect to work in that Ellison had confessed to stealing billions of FTX customers’ money, at Bankman-Fried’s direction.
There had been an open question of whether jurors would hear the tapes of Ellison’s remarks. The testimony set up an argument for the prosecution to get those tapes. The judge ruled in favor of the jury hearing the recordings and we briefly recessed.
The late afternoon was short and snappy. Christian Drappi, a former Alameda software engineer who looked like a handsome funeral director in a black suit and tie, testified briefly to set up the tape. When Changpeng Zhao, the CEO of Binance, announced on Twitter that he intended to acquire FTX, Ellison confessed the theft of customer funds to him and a few other employees, Drappi said. The all-hands took place the following day, and was secretly recorded by an employee who’d joined Alameda three days before.
The founder and former CEO of Blockfi, Zac Prince, was able to give a lengthy testimony about BlockFi’s failure because of FTX’s bankruptcy.
SBF is on trial for fraud and money laundering, not for bribing Chinese officials, but the most lurid and surprising part of Ellison’s testimony took the jury and gallery on an absurd digression.
Chinese officials froze Alameda’s account on Chinese exchanges because of a money-laundering investigation. The teams made risky moves in order to recover the money during the next year. This included hiring lawyers, as well as creating accounts in the names of “Thai prostitutes” to execute “trading strategies” to move the money. Some questions of its own were raised by the testimony of Ellison, who said that the information about the accounts came from FTX executive Ryan Salame.
“The thing” upset Alameda employee Handi Yang, the daughter of a Chinese official. Ellison claimed that the SBF yelled at her to shut the fuck up after she wouldn’t stop arguing against the idea. Later, in a group chat with SBF, Ellison, and another Alameda employee, the other employee joked about Yang’s father “turning us in immediately,” to which SBF responded: “lol.” Ellison explained the meaning of “lol” to the judge and jury, as a result of this exhibit.
Today, at the end of Ellison’s testimony during the trial of Sam Bankman-Fried, or SBF for short, prosecutor Danielle Sassoon asked why she had qualified her answer. The “I guess,” explained Ellison, was just a vocal tic. It wasn’t a question. It had been Bankman-Fried’s idea the entire time, she alleged.
FTX’s former Chief Financial Officer Sabrina Ellison, who’s accused of embezzling billions of customers’ money, has said she and FTX CEO Sam Bankman-Fried ” started sleeping together on and off” in 2018. She added that Bankman-Fried asked her to repay loans using FTX customer funds. Ellison said Bankman-Fried directed her to change spreadsheets so that Alameda’s financial picture was more positive.