Sam Bankman-Fried directed fraud on FTX clients, Caroline Ellison tells jury

NEW YORK, Oct 10 (Reuters) – Caroline Ellison, the previous chief government officer of Sam Bankman-Fried’s hedge fund, testified on Tuesday that the previous crypto mogul directed her and others to defraud clients of his FTX alternate by taking their cash with out their information.

Ellison, who stated she beforehand dated Bankman-Fried, depicted her former boss as an bold younger man who had no qualms about sharing deceptive monetary info with lenders, grew preoccupied with a rivalry with the Binance crypto alternate, and thought he might sooner or later change into U.S. president.

Ellison stated the hedge fund, Alameda Analysis, took about $10 billion in FTX buyer funds to repay its money owed and make investments. The fund gained the cash by a $65 billion line of credit score it had on the alternate, and from funds FTX clients deposited into an Alameda checking account when FTX lacked its personal account.

“He was the one who arrange these programs that allowed Alameda to take the cash and he was the one who directed us to take buyer cash to repay our loans,” Ellison stated throughout practically three hours of testimony. She is anticipated to return to the witness stand on Wednesday.

The testimony by Ellison, 28, was keenly awaited. She is considered one of three ex-members of the 31-year-old former billionaire’s internal circle who’ve pleaded responsible to fraud costs and agreed to cooperate with the Manhattan U.S. Lawyer’s workplace.

Prosecutors say Bankman-Fried plundered billions in buyer funds to prop up Alameda, purchase actual property and donate greater than $100 million to U.S. political campaigns earlier than FTX declared chapter in November 2022 following a collapse that shocked monetary markets and left his repute in tatters.

Bankman-Fried has pleaded not responsible to 2 counts of fraud and 5 counts of conspiracy, and has argued that whereas he made errors operating FTX, he by no means meant to steal funds.

In his opening assertion final week, protection lawyer Mark Cohen advised jurors to query whether or not cooperating witnesses like Ellison had been placing a brand new, nefarious spin on outdated selections by Bankman-Fried which that they had initially agreed with.

Gary Wang, FTX’s former expertise chief, testified that Bankman-Fried falsely tweeted that FTX was “nice” in November because the alternate confronted surging demand for withdrawals. A 3rd cooperating witness, former FTX engineering chief Nishad Singh, can also be anticipated to testify on the trial, which might last as long as six weeks.

BINANCE STAKE

Ellison stated Alameda first used its FTX line of credit score in the summertime of 2021, when Bankman-Fried wished to purchase again an fairness stake held by rival alternate Binance in FTX. Bankman-Fried had grown involved that “Binance would do issues to mess with FTX,” Ellison stated.

She stated she knowledgeable Bankman-Fried in a dialog at their workplaces in Hong Kong, the place each FTX and Alameda had been primarily based on the time, that Alameda must borrow from FTX to purchase again the $2 billion stake.

“He stated, ‘That is OK, I believe that is actually vital, we’ve got to get it carried out,'” Ellison stated, as prosecutors displayed an image of Bankman-Fried with Binance CEO Changpeng Zhao.

She stated Bankman-Fried finally used $1 billion in FTX buyer funds to purchase again the stake.

“It was Sam’s resolution,” Ellison stated.

Binance didn’t instantly reply to a request for remark. Bankman-Fried stated Binance supplied to take over FTX because it was collapsing in November 2022, however later backed out of the deal.

The U.S. Securities and Alternate Fee has sued Binance and Zhao, alleging that they commingled and diverted buyer funds. Binance and Zhao have denied the allegations.

PRESIDENTIAL AMBITIONS

Ellison testified that she met Bankman-Fried whereas each had been working at Jane Road, a Wall Road buying and selling agency. Bankman-Fried left in 2017 to discovered Alameda, and Ellison adopted when he supplied her a job as a dealer.

“He was very bold,” Ellison advised the courtroom.

She stated Bankman-Fried considered political donations as a comparatively cheap solution to amass energy, and even believed there was a 5% probability he might change into president himself.

“He stated he thought it was very efficient that you would get very excessive returns by way of affect by spending comparatively small quantities of cash,” she stated, including that he had donated $10 million to U.S. President Joe Biden’s marketing campaign.

In July, the New York Instances printed a narrative citing Ellison’s non-public writings from earlier than FTX’s collapse through which she described feeling overwhelmed at work and damage by a breakup with Bankman-Fried. After protection legal professionals acknowledged that Bankman-Fried had shared the writings with a Instances reporter, U.S. District Choose Lewis Kaplan revoked his $250 million bail and despatched him to jail for possible witness-tampering.

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