On the sixth day of the United States vs. Bankman-Fried trial, Caroline Ellison, a star witness, delivered a testimony that exposed a web of deception, financial turmoil, and Chinese bribery within the FTX scandal. The prominent exchange platform found itself at the center of this intricate scandal, as it was revealed that the company had received a staggering $100 million in Chinese bribes to unfreeze $1 billion of investigated money.
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Caroline Ellison’s Bombshell Revelations
Caroline Ellison, a former manager at Alameda Research, dropped the bombshell during her testimony. She alleged that the founder of FTX had lied to the public as liquidity and assets dwindled, sending shockwaves throughout the cryptocurrency community.
The second week of the trial had already seen a barrage of fraud claims against Bankman-Fried, but Ellison’s revelations took the proceedings to a whole new level. She discussed the existence of “Sam coins” and the role of FTT, FTX’s native token, in the company’s finances. According to Ellison, it was strictly forbidden to discuss these matters outside a select circle of individuals, including herself, Gary Wang (CTO of Alameda/FTX), Nishan Singh (chief engineer), and the FTX creator.
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Alameda’s Dubious Finances
Ellison raised concerns about Alameda’s role as SBF’s exchange market maker, alleging that the hedge fund required only a $200 million credit line despite having received a staggering $65 billion line of credit. She pointed out that Alameda had over $9 billion in outstanding debts to lenders in 2022, even though they were using consumer funds to fill gaps and offset losses. Additionally, she revealed that Alameda paid out billions in client bitcoin to settle debts, finance costs, and profit on other platforms, employing a high-level trading strategy known as arbitrage.
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Testimonies from Witnesses on the FTX Scandal
BlockFi CEO Zac Prince also took the stand, testifying about substantial loans and brokerage agreements between BlockFi and SBF-related firms. Meanwhile, Nishad Singh was scheduled to testify in the coming sessions.
The core of Ellison’s testimony centered on the vast sums of money involved. She disclosed that FTX consumers had deposited $13 billion while Alameda had effectively “borrowed” $10 billion. As the revelations unfolded, Judge Lewis A. Kaplan faced a crucial decision regarding a $100 million investment in an AI startup called Anthropic.
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The Chinese Bribery Allegation
AUSA Danielle Sassoon delved into the details of Ellison’s hedge fund trading positions. Danielle revealed “open-term” loans from Voyager and Genesis, which had come into play when the cryptocurrency market faced significant value fluctuations. Terraform Labs’ collapse had a domino effect, impacting multiple crypto companies, including Three Arrows Capital.
Caroline Ellison also discussed a $400 million Genesis loan repayment, financed by Alameda’s credit line using FTX user funds. According to Ellison, SBF decided that repaying debts in this manner was the only viable option. The situation became even more precarious, as FTX clients had deposited $13 billion but could only withdraw $3 billion. Ellison expressed her concerns, especially about mass withdrawals, as Alameda had removed a significant portion of FTX customer coins.
One particularly stunning revelation came when Ellison disclosed her meeting with Genesis’ head of leadership, Matt Ballensweig, in the Bahamas. She alleged that SBF had advised her to create seven different balance sheets with the intent of hiding Alameda’s $10 billion FTX user loan from Genesis.
As the trial unfolded, it became increasingly evident that FTX was on the brink of collapse. Ellison feared that if the truth came to light, FTX would be abandoned. This would be a problem as it could not cover all client withdrawals. She disclosed that SBF allowed a $500 million repayment to Genesis, acknowledging the potential consequences of the lender’s collapse. Genesis eventually filed for Chapter 11 in January 2023, revealing FTX’s precarious financial state.
The witness also spoke of her suggestion to hedge, contradicting the defense’s opening statement, which accused her of failing to heed SBF’s advice. Ellison maintained a real-time list of SBF’s priorities. This shed light on the founder’s efforts to court Saudi investors and lobby regional officials to shut down Binance. This dynamic, as cryptocurrency exchanges expanded in the Middle East amid U.S. regulatory uncertainties, added another layer of intrigue to the trial.
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Conclusion of Day 6 of the FTX Scandal
Day 6 of the trial saw the courtroom adjourned for a lunch break, allowing all parties to digest the revelations that had unfolded. Caroline Ellison’s testimony had sent shockwaves throughout the cryptocurrency world and left SBF’s defense team with an uphill battle to navigate.
When the trial resumed, Ellison provided further details about SBF’s investments in various entities. These included Forbes, Vox, Semafor, and cryptocurrency news site The Block. It was revealed that The Block CEO, Michael McCaffrey, had resigned in December 2022. He cited hidden SBF debts as the reason for his departure.
Ellison also described how Sam Bankman-Fried aimed to create an eccentric founder image for FTX. She was questioned about the misleading information provided to reporters. She acknowledged that she had conveyed information as instructed by SBF, who had expressed concerns about the Commodity Futures Trading Commission (CFTC).
The trial delved into the realm of political contributions, with Ellison providing insights into Alameda’s loans to CEOs. This included Paper Bird and Guarding Against Pandemic. The financial sheets revealed a staggering $8.2 billion in personal loans for SBF’s hedge fund. This further emphasized the depth of the financial entanglements.
In the end, Ellison concluded her prosecution evidence by confirming her guilt in the FTX scandal. She also expressed her determination to “tell the truth.” The trial took a twist when Judge Kaplan allowed the government’s move to exclude a $100 million investment in an AI startup. They ruled that the trial was for fraud, not speculative investment returns. The court refused SBF’s attorneys’ reconsideration motion.
The cryptocurrency world watched as the trial continued to unravel the intricate web of deceit and financial chaos surrounding the FTX scandal.
