Caroline Ellison says she felt ‘relief’ as FTX fraud was exposed

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Caroline Ellison fought back tears on Wednesday as she recalled the “relief” she felt at not having “to lie anymore” after it was revealed last year that the trading firm she ran had secretly stolen billions of dollars in customers’ money from Sam Bankman-Fried’s FTX cryptocurrency exchange.

In a Manhattan court, the 28-year-old, who ran FTX affiliate Alameda Research until its collapse in November 2022, read out private messages sent to Bankman-Fried in the company’s final days, including one in which she wrote: “This is the best mood I’ve been in in like a year.”

Her voice broke as she explained to the court the flood of conflicting emotions she felt during the demise of FTX, as she was released from the “dread” of Alameda’s secret dealings — which included betting with $10bn of FTX customer funds — being uncovered, while feeling “indescribably bad” for those harmed.

In the messages, a few days before FTX filed for bankruptcy, Ellison wrote that “it just feels great to get it over with one way or another”. Bankman-Fried replied “Congrats?” and “Because shit’s exciting?”

Ellison, who had an “on-again, off-again” romantic relationship with Bankman-Fried, pleaded guilty to fraud last year and is the star witness in the trial against her former boss, who faces decades in prison if convicted.

In a second day of testimony, she walked the jury through a document Bankman-Fried wrote reviewing FTX’s options as it fought for survival.

The former crypto billionaire listed Facebook co-founder Dustin Moskovitz as one of the people “most likely” to bail out the exchange, alongside Pete Briger of Fortress Investment Group, and private equity firm Apollo.

Moskovitz and Bankman-Fried were followers of effective altruism, a form of philanthropy that seeks to maximise the impact of donations. Ultimately, the FTX founder was unsuccessful in raising funds to bail himself out.

FTX collapsed after a flood of customer withdrawals exposed a multibillion-dollar hole in its balance sheet, created in part by secret lending to Alameda.

Ellison said Bankman-Fried had in June 2022 directed her to create seven “alternative” balance sheets for Alameda, some of which disguised billions of dollars of kickbacks to FTX executives.

She said she was ordered to cover up how the business was “funnelling” almost $4.6bn to Bankman-Fried and senior staffers, as well as the fact that the trading group was “borrowing $10bn from FTX customers”.

A version of Alameda’s accounts that made its “assets look larger” was provided to crypto lenders including Genesis, which was calling in loans amid a sharp downturn in the sector, Ellison testified. Genesis’s lending unit went bankrupt in January, owing its own creditors more than $3bn.

The jury was shown two versions of the spreadsheet side by side, revealing how Ellison had removed a reference to stolen customer funds, entitled “FTX borrows”. Loans that had been provided to FTX executives and partly invested into start-ups were also obscured.

“I was mostly concerned that if anyone would find out everything would come crashing down,” she said.

Ellison has painted the former tycoon as the orchestrator of a scheme that allowed Alameda to gamble with billions of dollars of FTX customer money, hiding the arrangement from investors, journalists and the public.

She also implicated Bankman-Fried in bribery. Ellison testified that in 2021, he ordered $150mn to be paid to officials to release roughly $1bn in funds held on two Chinese crypto exchanges, which had been frozen as part of an investigation into money laundering.

Ellison said the move was taken after attempts to limit the damage by trading using accounts in the name of “Thai prostitutes” failed.

When a colleague whose father was a Chinese government official raised objections, Bankman-Fried “yelled at her to shut the fuck up”, Ellison said.

In her own notes, which were entered into evidence, Ellison referred to the cost of the alleged brides as “the thing”, which she said was because she “did not want to put in writing that we had paid . . . bribes”.

That reticence came after Bankman-Fried had repeatedly urged his colleagues to use ephemeral messaging, in order to avoid “legal trouble”, Ellison said.

“Sam directed us to use the disappearing messages setting on our Signal . . . he said that we should be very careful what we put in writing,” she added.

Bankman-Fried has pleaded not guilty to all charges. His lawyers are set to question Ellison further on Thursday.