Caroline Ellison says working at FTX with Bankman-Fried led her to “lie and steal”

Sam Bankman-Fried’s former top executive for his crypto hedge fund says the collapse of FTX left her feeling “relief that I didn’t have to lie anymore.”

In emotional testimony in Manhattan federal court on Wednesday, Caroline Ellison blamed Bankman-Fried for crafting justifications for conduct that was wrong and illegal.

Ellison, the former CEO of Alameda Research, recalled Bankman-Fried’s contention that he wanted to do the greatest good for the most people, and that edicts such as “don’t lie” or “don’t steal” had to be ignored at times. 

Testifying for a second day, Ellison said she thought her onetime romantic partner’s philosophy made her “more willing to do things like lie and steal over time.”

After several hours on the witness stand, Ellison got choked up as she described the final days of FTX and Alameda, saying that the early November period before the businesses filed for bankruptcy “was overall the worst week of my life.”

Ellison said she felt bad for “all the people harmed” when there wasn’t enough money left for all of FTX’s customers and Alameda’s lenders.

When the collapse happened, Ellison said it left her with a “sense of relief that I didn’t have to lie anymore.”

Balancing Act

Earlier in her testimony, Ellison disclosed she changed balance sheets to try to hide that Alameda was borrowing about $10 billion from FTX customers in June 2022, when the cryptocurrency market was plummeting and some lenders were calling on Alameda to return their money.

Ellison at one point said she had created seven different balance sheets after Bankman-Fried told her to figure out ways to cover up things that might cast a negative light on Alameda’s operations.

“I didn’t really want to be dishonest, but I also didn’t want them to know the truth,” the 28-year-old said.

Ellison said in years past, she never would have thought she’d be sending phony balance sheets to lenders or misallocating customer money, “but I think it became something I became more comfortable with as I was working there.”

Ellison said she dreaded what would occur if customer withdrawals from FTX couldn’t be covered or that what they had done would become public.

“In June 2022, we were in the bad situation and I was concerned that if anybody found out, it would all come crashing down,” she said.

That crash came last November, when FTX couldn’t fulfill a rush of customer withdrawals, forcing it into bankruptcy and prompting investigations by prosecutors and regulators.

Ellison pleaded guilty to fraud charges in December, when Bankman-Fried was arrested in the Bahamas and extradited to the United States.

She was expected to be cross-examined on Thursday.

Bankman-Fried, 31, has pleaded not guilty to fraud charges. His lawyers argue he was not criminally responsible for the demise of his businesses.

Initially confined to his parents’ Palo Alto, California, home under terms of a $250 million bond, Bankman-Fried has been jailed since August after Judge Lewis A. Kaplan concluded that he had tried to improperly influence potential witnesses, including Ellison.

The son of Stanford University law professors, Bankman-Fried is accused of funneling billions of dollars from FTX to Alameda, allegedly using as much as $10 billion in customer deposits to cover luxury real estate purchases and large political donations. He faces a potential prison term of more than a century if convicted of federal fraud and money-laundering charges.