SBF's ex-girlfriend: He 'directed me' to steal billions from FTX

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Caroline Ellison was one of Sam Bankman-Fried’s top deputies and his onetime romantic partner. On Tuesday she testified that Bankman-Fried "directed me" to steal billions from customers of his cryptocurrency exchange.

Ellison ran day-to-day operations for Alameda Research, a crypto trading firm also controlled by Bankman-Fried. She said Alameda took "around $14 billion" from FTX customers to repay debts Alameda had accumulated.

She said she also sent information to Alameda's lenders "from Sam" that made Alameda's balance look better than it was.

The crimes she said she committed at Alameda weren't done on her own. "They were committed with Sam. ... He directed me to commit these crimes."

Former crypto hedge fund Alameda Research CEO Caroline Ellison arrives for the trial of former FTX Chief Executive Sam Bankman-Fried, who is facing fraud charges over the collapse of the bankrupt cryptocurrency exchange, at Federal Court in New York City, U.S., October 10, 2023 in this still image from video. Reuters TV via REUTERS
Caroline Ellison arrives to testify during the trial of former FTX Chief Executive Sam Bankman-Fried. (Reuters TV via REUTERS) (Reuters TV / reuters)

The testimony from the 29-year-old Ellison marked her first public comments about what transpired as the FTX cryptocurrency exchange imploded last November, an unraveling that led to the arrest and indictment of the 31-year-old Bankman-Fried.

Prosecutors are arguing that Bankman-Fried embezzled billions in FTX customer funds while also defrauding investors and lenders.

Ellison, their star witness, corroborated earlier testimony from FTX and Alameda co-founder Gary Wang, who said Alameda had essentially unlimited access to FTX customer funds.

Bankman-Fried "was the one who set up these systems," Ellison said of Alameda's ability to tap into FTX customer deposits.

Ellison is one of several members of Bankman Fried's inner circle who pleaded guilty to criminal charges and agreed to testify against Bankman-Fried, including Wang and chief engineer Nishad Singh.

She appeared in court Tuesday wearing glasses, a reddish-orange dress with black tights, and a black blazer. When asked to identify Bankman-Fried, she stood up and struggled to find him in the sea of people filling the courtroom.

Sam Bankman-Fried's former girlfriend, Caroline Ellison, walks through security at Manhattan Federal Court.
Sam Bankman-Fried's former girlfriend, Caroline Ellison, walks through security at Manhattan federal court on Tuesday. (Bryan R. Smith/AFP via Getty Images) (BRYAN R. SMITH via Getty Images)

Bankman-Fried’s team could try to pin some blame on Ellison too. His defense attorney argued last week that when Bankman-Fried became concerned about crypto prices going down, he urged Ellison to put on a hedge. Yet she didn’t do it, according to the attorney.

Bankman-Fried made a similar claim in a series of his unsent Twitter posts and writings that Bankman-Fried shared with crypto blogger Tiffany Fong while on house arrest.

"She continually avoided talking about risk management — dodging my suggestions — until it was too late," Bankman-Fried wrote, according to the New York Times.

The US district court judge overseeing his case, Lewis Kaplan, concluded Bankman-Fried engaged in witness tampering by leaking those diary-like writings to the New York Times. In August, he ordered Bankman-Fried to await trial at a Brooklyn administrative prison known for grueling conditions.

Bankman-Fried has pleaded not guilty to all charges, and his defense attorney has said he didn't steal money from FTX because he believed in "good faith" that Alameda could use funds on deposit with his cryptocurrency exchange.

'The auditors aren’t going to look at that'

Ellison and Bankman-Fried first met at a New York trading firm called Jane Street Capital, where she worked as a quantitative trader.

After Bankman-Fried co-founded Alameda, a hedge fund firm that specialized in quantitative crypto trading, he eventually hired Ellison in 2018. He named her as co-CEO in 2021 and sole CEO in 2022. She was paid $200,000 in salary per year and received two bonuses of $20 million and $100,000.

She said she didn’t feel particularly equipped for the CEO position but Bankman-Fried said it made sense and there wasn’t anyone better for the job.

Ellison testified that she and Bankman-Fried would have regular conversations about Alameda and FTX. It was a "big priority" for Bankman-Fried to increase Alameda’s borrowing capabilities so that the company could make more trades, investments, and acquisitions.

“Sam was directing us to borrow as much money as we could,” Ellison said.

Assistant U.S. Attorney Danielle Sassoon questions Caroline Ellison in front of a screen showing Binance CEO Changpeng Zhao and Sam Bankman-Fried shaking hands, at Bankman-Fried's fraud trial before U.S. District Judge Lewis Kaplan over the collapse of FTX, the bankrupt cryptocurrency exchange, at Federal Court in New York City, U.S., October 10, 2023 in this courtroom sketch. REUTERS/Jane Rosenberg
A courtroom sketch showing Assistant US Attorney Danielle Sassoon, center, questioning Caroline Ellison, right, at Bankman-Fried's fraud trial. (Jane Rosenberg/REUTERS) (JANE ROSENBERG / reuters)

Early on in her time at Alameda, Ellison said, the company would take loans from third-party lenders, and by 2021 the amount was $10 billion-15 billion. Those loans, however, were open-term loans that if recalled would need to be paid back immediately.

For that reason, she said, she was asked by Bankman-Fried to create spreadsheets showing various scenarios that would impact Alameda’s ability to continue taking out loans, as well as repay them. Ellison said Bankman-Fried told her at one point that FTX funds would be a "good source of capital" for Alameda.

FTX cryptocurrency assets were the first types of assets Alameda used from the cryptocurrency exchange, she said. Later on, she said, Alameda began to tap FTX’s fiat currency deposits. The reason to use the funds, she said, was so that Alameda could make investments and execute arbitrage trades in various cryptocurrencies.

Ellison testified she first raised concerns about using FTX customer funds during an audit of FTX.

"No don’t worry. The auditors aren’t going to look at that,” she said Bankman-Fried told her. 

'I didn't feel good about it'

Ellison said she also learned that FTX had made multimillion-dollar loans to FTX executives, including Bankman-Fried, some of which she signed on behalf of Alameda. The purpose of the loans, she said, was so Alameda could invest in a gambling startup and so political donations could be made.

Ellison said the illiquid nature of Alameda’s long-term investments and debt made her concerned about Alameda’s ability to pay the open-term loans if they were called.

“I didn’t feel good about it,” Ellison said.

Caroline Ellison former CEO of Alameda Research founded by Sam Bankman-Fried exits the Manhattan federal court after testifying on Tuesday, Oct. 10, 2023, in New York. (AP Photo/Eduardo Munoz Alvarez)
Caroline Ellison exits a Manhattan federal court after testifying on Tuesday. (Eduardo Munoz Alvarez/AP Photo) (ASSOCIATED PRESS)

In the fall of 2021 Ellison began sharing analyses for worst-case and bad-case scenarios in the event that Alameda’s loans needed to be repaid — selling cryptocurrencies, raising more capital, adding more loans — all of which showed significant risk for Alameda.

She was asked Tuesday while testifying how she would repay the loans if they were called.

"I assumed we would use customer funds."

Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.

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