The prosecution’s star witness Caroline Ellison took to the stand as the criminal trial of FTX founder and former CEO Sam Bankman-Fried entered its second week.

It’s the first time the on-and-off girlfriend of Bankman-Fried and the former co-CEO of his crypto hedge fund Alameda Research will provide her side of the story on what happened in the lead up to the collapse of both FTX and its sister company Alameda.

Though Ellison was a key member of Bankman-Fried’s inner circle and lived with him and other executives in a $40 million apartment in the exclusive luxury residence of Albany in the Bahamas, she maintained a relatively low profile up until the exchange’s collapse. Most of the details about Ellison come from publicly available information, including her Good Reads and Tumblr profiles, as well as an emergency all-hands speech given to Alameda Research employees on Nov. 9, 2022 where she said Bankman-Fried made the decision to use customer deposits to repay creditors. 

In Ellison’s testimony, she estimates that Alameda ultimately took around $14 billion from FTX customers to repay lenders, according to a live blog of the trial from court reporting organization Inner City Press.

“How did you defraud Alameda’s lenders?” asked assistant U.S. attorney Danielle Sassoon. “I sent balance sheets that made Alameda look less risky than it was,” Ellison said.

Alongside FTX executives Gary Wang and Nishad Singh, Ellison pleaded guilty to criminal charges including defrauding FTX customers and investors. The three former executives have been cooperating with the prosecution and Wang’s testimony preceded Ellison’s in the trial.

Bankman-Fried returned to jail pre-trial in August after leaking Ellison’s private diaries to the media, which the prosecution said was a form of witness intimidation.

Unlike Wang and Singh, Ellison only received a very small equity stake in FTX of 0.5% and no equity stake in Alameda Research despite being appointed as a co-CEO alongside Sam Trabucco in 2021.

“Did you feel qualified?” asked the prosecution. “Not really but Sam said I should do it,” Ellison said. “I checked everything with him. He was the person I reported to. He could fire me.”

Alameda’s secret sauce

Ellison’s testimony provided insight into trading operations at Alameda Research, which was once considered one of the best trading firms in the crypto industry. 

“We also had a line of credit on FTX — we could withdraw coins even if we didn’t have them,” said Ellison, adding that she didn’t know the size of the line of credit.

“If a coin was trading for higher on Binance, we could withdraw from FTX and sell there,” she said, explaining the firm’s strategies.

Bankman-Fried was particularly secretive about the strategy for FTX’s native token FTT and would get upset when it was discussed with other traders, Ellison said. Alameda was under Bankman-Fried’s directive to never let FTT fall below $1, she said. At its peak, FTT traded around $84 and fell over 98% to $0.77 when the exchange collapsed, according to data from Coingecko.

FTT was included on Alameda Research’s balance sheet to get loans from the now bankrupt crypto lender Genesis, Ellison said. Its inclusion artificially boosted the value of the trading firm as most of FTT’s value came from Alameda’s trading and was relatively illiquid.

“I thought it was misleading,” said Ellison referring to FTT’s inclusion.

Political ambitions

Some customer funds taken from the trading firm were also used as loans for employees including Ellison. She described withdrawing US$2 million for her own donor-advised fund and a US$100,000 loan to her parents.

There was also “one loan of $3.5 million for a gambling company people at FTX wanted to put in my name since I wasn’t on the books of FTX,” Ellison said.

“Money also went to political contributions. Ryan Salame got a $35 million loan,” she continued. “Sam gave $10 million to Biden, he thought it bought him access.”

Ellison’s testimony is expected to be the longest out of all the prosecution’s witnesses. The “cross and direct” examination phase of her testimony — where defense and prosecution lawyers delve deeper into witness testimony — is set to take place throughout tomorrow.