Caroline Ellison Was CEO but Sam Bankman-Fried Was Still Boss of Alameda, Her Testimony Suggests

“He’s wearing a suit.”

So began the testimony of Caroline Ellison, the former business, romantic – and by her estimation, criminal – partner of Sam Bankman-Fried, whom she identified upon prosecutors’ request – albeit in the vaguest of ways.

This bespectacled crypto trader’s unexpected laugh line kicked off perhaps the most lurid testimony yet of the FTX crypto fraud trial. Caroline had found herself deeply involved in many of the allegedly criminal decisions she and Sam made – decisions that ultimately deleted billions of dollars of exchange customers’ wealth. Now, nearly one year after FTX’s collapse, Caroline once again has found herself deeply involved in what’s happening.

Thing is, she couldn’t find Sam.

You're reading The SBF Trial, a CoinDesk newsletter bringing you daily insights from inside the courtroom where Sam Bankman-Fried will try to stay out of prison. Want to receive it directly? Sign up here.

For maybe 30 seconds Caroline searched the courtroom for her former paramour. Leaner and sheared, he likely looked different to his longtime colleague-turned-government witness (After all, they probably haven’t seen each other in person since last November.) But Sam was doing her no favors. When prosecutors asked their other witnesses to point Sam out in the courtroom, he sat up straight, tall and high, as if to say ‘I’m over here.’ Not so on Tuesday: Sam stayed low in his chair and stiller than usual until his ex-girlfriend picked him out. Even Bankman-Fried’s parents – whose pained expressions have become a typical feature of the courtroom’s viewing gallery – couldn’t help but to chuckle once she finally identified their son.

The specter of their rocky relationship looms over this trial. Sam, the CEO of FTX, years ago picked Caroline, whom he met during his Wall Street days, to help run his crypto hedge fund Alameda in 2021 (where she began working in 2018). At the time they weren’t dating – they were on a break – but they would again, infusing into their massive financial decisions an imbalanced power dynamic that would make any HR department short-circuit. Their affair is the fluttering strand of subway bathroom toilet paper stuck to their heels. THEY can’t shake it off. YOU can’t look away.

Caroline Ellison would very much like us to look away. She showed up at Manhattan federal court at 9:37 AM Tuesday morning hidden beneath a baseball cap and big shades, attempting to escape the inevitable paparazzi crush that had come to her premiere. Caroline’s relationship with Sam has been talked up in books, exploited in the press. What did she know about the money she says she helped steal?

The answer is quite a lot. In the first day of what’s sure to be a lengthy testimony, Caroline gave the jury a methodical tour of the crypto loans that felled Alameda, FTX and the exchange’s customers, investors and lenders. By her account, it was all about appearances. She discussed the highly illiquid “Sam coins” that made Alameda’s balance sheet look robust to major lenders, including Genesis (a subsidiary of CoinDesk owner Digital Currency Group), which subsequently loaned the hedge fund billions of dollars secured by soon-to-be-toxic collateral: FTX’s own cryptocurrency, FTT.

According to the org sheets, Caroline was ultimately in charge of Alameda. But again, that appearance was more of an artifice, she said. Sam, who owned 90% of the company, had anointed her co-CEO because “he thought it was important to separate Alameda and FTX more optically.” In reality, he retained ultimate leverage over his lover and subordinate. Caroline’s pay remained the same even though she had become CEO of a massive trading operation. And her power was not commensurate with that of a true chief executive.

Through all of this ran Sam and Caroline’s relationship. There, too, their power dynamic was off-kilter. She ultimately broke it off after two rounds because, she said, he ignored her emotionally. “We agreed to keep it a secret” from the rest of the crypto empire’s employees the first time, Caroline said, as if to underscore this “agreement” was mutual. Her follow-up statement revealed it was almost certainly not: “Sam agreed we could make it public” the second time around.

In business, too, Sam seemed to discredit her. When Caroline warned Sam that there was a high likelihood Alameda’s tangled lending practices would lead to an implosion unless they changed the terms of their loans in late 2021, he went ahead with a massive set of venture investments that only further imperiled the operation.

Through all of this testimony, the gallery was quieter than usual.

We’re only at the start of Caroline’s blockbuster look into Alameda’s downfall. The coming days – and the cross-examination – could provide a turning point before the week is out.

Courtroom scenes

Early on in her testimony, Ellison told the jury that Bankman-Fried once said to her that he estimated his odds of becoming president of the United States at 5%. Whether those odds have changed in light of recent events, Ellison did not specify, but her statement elicited muted laughter from the courtroom’s viewing gallery.

Those present to view Ellison’s testimony needed to show up in person – and early. Scoring a spot in the packed courtroom meant queuing outside of the courthouse in New York’s Financial District as early as 4:30 a.m. Tuesday morning. By the time the court opened its doors at 8:00 AM, the line had grown into a motley crew of journalists, self-avowed crypto degens, lawyers, PR professionals and assorted citizens curious to catch a glimpse of Ellison – whose on-and-off relationship with Bankman-Fried has become tabloid fodder in the months since FTX and Alameda collapsed last year.

The FTX-Alameda corporate intrigue even attracted a handful of effective altruists – members of the practical giving community upon which Bankman-Fried, Ellison, and other top FTX-world executives were dedicated adherents. One of the effective altruists who showed up to view Ellison’s testimony said he was a fan of her effective-altruism-focused Tumblr blog, which she wrote under a pseudonym, long before she earned infamy for her role in a massive corporate scandal.

Only the first 20 of the dozens lined up would earn a spot in the court, which was not photographed or televised beyond an internal closed circuit television.

Among those in and around the courtroom Tuesday afternoon were teen-heartthrob-turned-crypto-critic Ben McKenzie, U.S. Attorney Damian Williams and YouTube crime buster CoffeeZilla.

Defense attorney Christian Everdell had a stronger opening round of questioning on Tuesday than he’s had in the first week of the trial, with fewer interruptions from the prosecution and reprimands from Judge Lewis Kaplan, at least for the first hour of his cross-examination of FTX co-founder and former Chief Technology Officer Gary Wang.

The judge also engaged in a somewhat longer question-and-answer session with Wang than he’s done with witnesses so far, asking why the former FTX executive had signed off on loan documents worth tens of millions of dollars, particularly when it appeared the funds were then spent by Bankman-Fried.

“Sam mentioned something about not wanting this to come directly – or something about it being an FTX investment but didn't want the money to come from Alameda. I wasn't entirely clear on what the explanation was,” Wang said.

What we're expecting

Prosecutors told the court at the end of Tuesday’s session that they expect Caroline Ellison’s testimony to go through all of Wednesday. After she concludes direct questions and cross-examination, the DOJ expects to call up BlockFi’s Zac Prince and former Alameda software developer Christian Drappi, an assistant U.S. attorney said.

The names suggest the DOJ will continue with its current trend of alternating between witnesses who were financially or otherwise affected by FTX’s collapse and those who were in a position to know more about FTX and Alameda and their internal operations.

Prosecutors now expect to rest their case within four weeks or so – ending as soon as Oct. 27. The defense – assuming it puts on a case – still expects to take another week and a half after that, suggesting the trial could end as soon as Nov. 9 (court will be out of session on Nov. 10, Veteran’s Day in the U.S.).

Jury deliberations after that will likely take some time to conclude.

There are a number of other outstanding motions that Judge Lewis Kaplan must consider through the trial. The prosecution is still hoping to call an unnamed Ukrainian witness to the stand to testify about how he lost his funds as an FTX customer. The judge wants confirmation that this witness will provide some unique insight, and suggested that the DOJ “better consider alternatives.” An assistant U.S. attorney said he’d get back by the end of the week.

Bankman-Fried’s attorneys also have an outstanding motion asking for clarity on how and to what extent they can discuss issues like the defendant’s charitable giving.