According to the U.S. government, Sam Bankman-Fried, a disgraced cryptocurrency mogul, stands accused of perpetrating one of the most significant financial frauds in history. Conversely, his defense lawyers contend that he was simply a young individual who found himself overwhelmed by the circumstances.
Two weeks have passed since the commencement of the prominent criminal trial involving the former CEO of FTX, a cryptocurrency exchange. Throughout this period, jurors have been presented with opening statements and testimonies from the prosecution’s key witness, Caroline Ellison. A former high-ranking executive within Bankman-Fried’s crypto empire and his former romantic partner, Ellison’s testimony has been of great significance. The following provides an overview of the trial proceedings thus far.
Recap of Sam Bankman-Fried’s Second Week in Court
During the second week of the highly publicized criminal lawsuit against Sam Bankman-Fried, a series of allegations emerged. These included claims that the former FTX CEO sanctioned bribes to Chinese Communist Party officials, sought emergency funding from Saudi Prince Bin Salman, and had knowledge of Alameda Research’s day-to-day operations, despite asserting the implementation of a firewall between the exchange and hedge fund.
Caroline Ellison, SBF’s former girlfriend and ex-CEO of Alameda, began the week with a sensational testimony on Tuesday. Like FTX co-founder Gary Wang in the previous week, Ellison admitted to engaging in fraudulent activities early in her questioning. Both Wang and Ellison, along with another former FTX executive, Nishad Singh, have entered plea deals with the U.S. Department of Justice (DOJ). Singh is set to testify later in the trial, which may result in reduced penalties for their confessed crimes.
Ellison’s testimony delved into her tumultuous relationship with SBF, concerns regarding Alameda’s significant line of credit at FTX, and how SBF guided her, a naturally reserved mathematics major, to become the public face of one of the crypto industry’s most valuable trading firms. On the stand, Ellison became emotional while discussing the chaotic days leading up to FTX’s collapse, when it became evident that the exchange could not fulfill all necessary customer withdrawals.
Ellison also spoke about the sense of relief she experienced when a manipulated version of Alameda’s balance sheet was leaked to CoinDesk. This led to the publication of an award-winning article that raised doubts about the solvency of SBF’s crypto trading empire. According to Ellison, FTX was unable to meet its obligations to customers because funds had been misappropriated.
Ellison revealed that FTX customer funds were used to fulfill various financial obligations of Alameda, including loans from crypto lenders and to cover losses in the balance sheet resulting from failed investments by the supposedly market-neutral hedge fund. When Genesis Capital, a sister company of CoinDesk, requested an updated account of the trading firm’s position, SBF allegedly instructed Ellison to create seven fabricated versions of the balance sheet to conceal Alameda’s misappropriated funds. Ellison admitted on the stand that she was aware this deceptive representation masked the true risks that Alameda had incurred.
FTX customer assets were also utilized for Bahamian luxury real estate, venture capital investments, and a wide-ranging political funding campaign allegedly overseen by SBF’s mother, Barabara Fried, through her Democrat campaign financing organization. Ellison, who had requested but was denied equity in Alameda, estimated that $5 billion in personal loans were distributed to FTX insiders.
During cross-examination, SBF’s lead attorney, Mark Cohen, developed an argument suggesting that Ellison, as CEO, held responsibility for the firm’s deficient management. Specifically, Cohen questioned Ellison about the hedge fund’s failure to hedge against market downturns or sour deals, which SBF purportedly suggested. While Ellison acknowledged that Alameda could have been better prepared financially, she also stated that no trading strategy could account for the billions of dollars that SBF had diverted elsewhere.
Under Ellison’s guidance, FTX executives Wang and Singh collected data revealing that Alameda had withdrawn deposits amounting to over three-quarters of FTX customers’ total holdings. This included over half of the ETH held on the exchange, as well as portions of customers’ USDT and BTC. Another witness, Alameda developer Aditya Baradwaj, testified on Thursday that Alameda incurred at least $200 million in losses due to preventable mistakes, including $100 million lost to a phishing scheme.
District Judge Lewis Kaplan continued to reprimand SBF’s defense attorneys this week, with many courtroom attendees noting their repetitive questioning. Cohen’s approach during Ellison’s cross-examination, which took place on Thursday, has been described as convoluted and perplexing. The prosecution accused SBF, during a sidebar with the judge, of exhibiting contemptuous behavior and laughter during Ellison’s testimony, an allegation that his lawyers refuted.
To provide a comprehensive overview of the trial’s key moments this week, we will examine recent reporting, court documents, and transcripts. These highlights include the misuse of the exchange token FTT to deceive investors, recent revelations regarding the $400 million attack on FTX, and the most incriminating allegations thus far:
- According to an unpublished blog post presented in SBF’s trial, Sam Bankman-Fried reportedly contemplated shutting down his hedge fund, Alameda Research, in mid-2022 due to concerns about its “nefarious trading activity” and over-leveraged position on the ostensibly separate exchange, FTX.
- On Tuesday, former Alameda CEO Caroline Ellison testified that the fund willfully manipulated its balance sheet under SBF’s instructions to appear “less risky to investors.” The 28-year-old Ellison also asserted that Alameda unlawfully diverted billions of dollars from FTX customers to support doomed investments and gain political influence.
- SBF’s defense attorneys argued that Ellison, SBF’s former romantic partner, negligently managed Alameda and disregarded Bankman-Fried’s instructions to hedge positions, which contributed to the collapse of both businesses. The alleged strategy involved purchasing S&P 500 options, which SBF incorrectly believed were “uncorrelated” with the crypto market.
- During Wednesday’s testimony, Ellison revealed that SBF had engaged in discussions with Saudi Prince Mohammed Bin Salman to potentially backstop FTX losses before declaring bankruptcy. Ellison also claimed that SBF was regularly informed about the amount of money Alameda had withdrawn from FTX customer accounts.
- In an attempt to recover $1 billion in frozen funds from Huobi and OKX exchanges, which were involved in a money laundering investigation in China, Ellison testified that Alameda had allegedly tried to bribe Chinese government officials to release the capital. However, this claim was struck from the record.
- Ellison further disclosed that Alameda had paid Thai prostitutes to open accounts on those exchanges, enabling them to execute trading strategies aimed at slowly draining the locked funds. These funds represented a significant portion of the hedge fund’s assets at the time.
- As evidence, Ellison’s well-known “Things Sam is freaking out about” list was introduced—a frequently updated Google Doc that detailed her on-and-off boyfriend’s mounting anxieties. The list included concerns about negative press coverage and SBF’s alleged plan to prompt regulators to scrutinize rival Binance, under the assumption that FTX would absorb Binance’s customers, helping to compensate for its missing $8 billion.
- SBF is accused of fostering “a culture of secrecy” among senior personnel. This involved employing encrypted messaging app Signal, setting messages to automatically delete within a week, and favoring in-person meetings. Executives also utilized coded language, such as referring to “our Korean friend,” allegedly alluding to the alleged “backdoor” used to divert funds from FTX.
- SBF has argued that this behavior was advised by FTX’s retained counsel, particularly the law firm Sullivan & Cromwell. In November, several FTX executives began preserving messages during the exchange’s liquidity crisis, which ultimately led to the company seeking bankruptcy protections.]