Caroline Ellison Admits To Crypto Hedge Fund Wrongdoing 'Because Sam Told Me To'

Caroline Ellison, the former CEO of the now-defunct crypto hedge fund Alameda Research, returned to the stand Wednesday as the prosecution's star witness. She admitted to having done many things for Sam Bankman-Fried. This included preparing seven different balance sheets for Genesis and continuing to repay Alameda Research's lenders with FTX customers' money. She admitted to doing this "because Sam told me to."

During her testimony Tuesday, Ellison told the court that Bankman-Fried, the co-founder of Alameda Research and FTX, had instructed her to come up with various ways to conceal billions in loans on the crypto hedge fund's balance sheets.

Before meeting with Matt Ballensweig, the co-head of trading and lending at the crypto lender Genesis, Bankman-Fried, who was the CEO of FTX at the time, asked Ellison for an updated balance sheet of Alameda.

"Sam said not to send the balance sheet to Genesis," Ellison told the court.

"We were borrowing $10 billion from FTX, and we had $5 billion in loans to our own executives and affiliated entities. We thought Genesis might share the info," she continued.

"He told me to come up with alternative ways to present the information. He wanted me to conceal things on our balance sheet. So I prepared seven different balance sheets. I did not want to be dishonest, but I presented the alternatives to Sam and let him decide," the 28-year-old Stanford University alumnae disclosed.

This event took place on June 19, 2022, just a few months before FTX and its affiliated businesses filed for Chapter 11 bankruptcy protection.

Ellison also shared that of the seven different balance sheets, Bankman-Fried chose to present the version that did not show the $9.9 billion Alameda Research owed to FTX customers, with the intent to make the crypto hedge fund appear less risky.

Aside from this incident, Ellison also admitted to the court on Wednesday that despite misgivings, she followed Bankman-Fried's direction for Alameda Research to continue paying its lenders using FTX customers' money.

Ellison recalled that in May 2022, during the decline of LUNA's price (Terra's native cryptocurrency), which impacted the broader cryptocurrency market, creditors of Alameda started calling back loans.

"I was in a constant state of dread," Ellison shared, adding, "I knew we would have to take the money from our FTX line of credit, and that was money that could be called in at any time."

When asked why the money was risky, the former CEO responded that it "was coming from FTX customers," who could withdraw their funds at any time.

Throughout the spring of the previous year, Ellison was worried that Alameda's dependence on the funds of FTX customers could spell disaster for both firms.

"I was concerned that if everyone found out, then everything would come crashing down," Ellison admitted.

Despite this, Ellison told the court that she continued paying back lenders of Alameda Research through its credit line at FTX, which meant using the exchange customers' funds, "because Sam told me to."

Ellison also testified that while she did not want to be dishonest, she "was afraid to share the truth."

She also recalled how Bankman-Fried, her former lover and colleague, told her that lying and stealing money were allowed in his worldview.

"He didn't think rules like 'don't lie' and 'don't steal' fit in that framework," Ellison shared.

Over time, Ellison said she had grown accustomed to doing these things, like providing false information to business partners and using FTX customers' money for Alameda Research.

"Over time, it was something I became more comfortable with while working there," the former Alameda Research CEO admitted.

Last month, Bankman-Fried deliberately leaked a 700-page document to The New York Times containing his ramblings on a wide range of subjects, including his attempts to justify his actions that led to the crash of FTX in November 2022.

The documents not only revealed the complex state of mind Bankman-Fried was in during his house detention but also offered a potential glimpse at his defense strategy, which involved blaming the collapse of his crypto empire on his ex-girlfriend Ellison.

He highlighted that Ellison was ill-equipped for her position and did not implement proper trading strategies, which he believed could have shielded their business from market tumult.

In the months since his empire collapsed, Bankman-Fried has been shifting blame onto Ellison.

"She continually avoided talking about risk management, dodging my suggestions, until it was too late," SBF said in a draft titled "Alameda's Failure to Hedge."

"Every time that I reached out with suggestions, it just made her feel worse. I'm sure that being exes didn't help," he added.