Caroline Ellison, who eventually was made chief executive of Bankman-Fried’s cryptocurrency hedge fund, Alameda Research, blamed the man she was entwined with romantically for several years since 2018 for creating justifications so that she could do things that she now admits were wrong and illegal.
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Testifying in federal court in Manhattan, she recalled that Bankman-Fried said he wanted to do the greatest good for the greatest number of people and that rules like “don’t lie” or “don’t steal” must sometimes be set aside.
Assistant U.S. Attorney Danielle Sassoon asked Ellison how she was affected by Bankman-Fried’s philosophy.
“I think it made me more willing to do things like lie and steal over time,” she said.
After several hours on the witness stand, Ellison got choked up as she described the final days of FTX and Alameda, saying that early November period before the businesses filed for bankruptcy “was overall the worst week of my life.”
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She said she had a “feeling of relief” when the public learned of what went on because it was “something I had been dreading for the last several months.” Earlier in her testimony, Ellison revealed that she doctored balance sheets to try to hide that Alameda was borrowing about $10 billion from FTX customers in June 2022, when the cryptocurrency market was falling dramatically and some lenders were demanding that Alameda return their investments in full.
She said she once created seven different balance sheets after Bankman-Fried directed her to find ways to conceal things that might look bad to Alameda’s lenders.
“I didn’t really want to be dishonest, but I also didn’t want them to know the truth,” Ellison said.
She said a few years earlier, she would never have believed that she’d one day be sending false balance sheets to lenders or taking customer money, “but I think it became something I became more comfortable with as I was working there.”
Ellison said she was in a “constant state of dread” at that point, fearful that a rush of customer withdrawals from FTX couldn’t be met 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.
The 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.
“I was terrified,” she said. “This was what I had been worried about the past several months and it was finally happening.”
Ellison, 28, pleaded guilty to fraud charges in December, when Bankman-Fried was extradited to the United States from the Bahamas.
Bankman-Fried, 31, has pleaded not guilty to fraud charges. His lawyers say he was not criminally to blame for what happened to 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.
