NEW YORK – Caroline Ellison, former CEO of Alameda Research, testified that she committed fraud at the direction of her ex-boyfriend and former colleague, FTX exchange founder Sam Bankman-Fried.

Ellison, 28, is the government’s highly anticipated star witness in the six-week trial of Bankman-Fried. She was the CEO of Alameda Research, the hedge fund prosecutors say stole billions of dollars from customers of its sister company, the cryptocurrency exchange FTX. (Read the government’s indictment here.)

Prosecutors began their questioning of Ellison by asking her if she committed crimes and if so, who she committed them with.

Ellison, who pleaded guilty to fraud and conspiracy charges last year, said she had, and that she had committed them at the direction of Bankman-Fried.

“I sent balance sheets at the direction of Sam that made Alameda’s balances look less risky to investors,” she said, also testifying Alameda had taken funds from FTX to make its own investments.

Her proximity to Bankman-Fried’s business and personal lives is almost certain to give the jury its closest look yet at the decision-making that led to FTX’s epic collapse last November. She has been cooperating with the government since at least December, when she pleaded guilty to an array of financial crimes stemming from her time at Alameda.

Borrowing from FTX customers

Ellison also spoke about Alameda’s borrowing FTX customers’ funds.

Bankman-Fried “said to use FTX funds but to keep money on FTX” to meet customer withdrawal requests, she said.

A lot of this money went to loans made to members of Bankman-Fried’s inner circle, with funds going toward “investments and political donations,” Ellison said.

According to Ellison, Bankman-Fried thought the political donation strategy was “highly effective,” offering “very high returns in terms of political influence” at a modest cost.

But “I didn’t feel good about it,” she said of the loans made to insiders. “It might look like Alameda sort of … funneling money to FTX executives.”

As for her on-and-off romantic relationship with Bankman-Fried, Ellison said: “It created some awkward situations.”

SBF in charge

Ellison testified that she reported to Bankman-Fried even after being appointed CEO of Alameda Research, despite the appearance that Bankman-Fried was stepping back from the hedge fund he started to focus on running the FTX exchange.

“I would always ultimately defer to Sam,” she testified.

She said she had no equity in Alameda despite asking for it. Bankman-Fried decided it would be “too complicated and didn’t make sense” for her to get a stake in the hedge fund, though she did have a sliver of equity in FTX.

“He thought it was important to separate Alameda and FTX more optically,” Ellison said of Bankman-Fried.

Ellison also spoke about the “essentially unlimited” line of credit Alameda had at FTX. Bankman-Fried “was the one who set up these systems,” she said.

Borrowing from Genesis, pledging FTT

A big part of Ellison’s testimony focused on Bankman-Fried’s desire to secure loans for Alameda.

“Sam was directing us to borrow as much money as possible,” she said. “This is something he talked about a lot.”

Her testimony shed new light on why FTX’s exchange token, FTT, made up such a large portion of the Alameda balance sheet CoinDesk obtained last November, an award-winning scoop that set off the unraveling of Bankman-Fried’s empire.

“Sam had said that he wanted to buy more (FTT) ... because he didn’t want to put any of our loans in danger,” Ellison said Tuesday. “It was a little potentially misleading to put the FTT tokens on” the balance sheet.

One scenario management worried about was that lenders such as Genesis would cease to accept FTT as collateral, Ellison said.

“We were borrowing billions of dollars from Genesis using FTT as collateral on our loans,” she said. (Genesis, a trading business that has since ceased trading, was a subsidiary of Digital Currency Group, which also owns CoinDesk.)

Testing the judge’s patience, again

Like last week, Bankman-Fried’s lawyers appeared to wear on Judge Lewis Kaplan’s patience as they continued to raise objections throughout Ellison’s testimony.

“What is the objection?” Judge Kaplan asked the defense at one point.

“This is supposed to be a direct examination, your honor,” one of Bankman-Fried’s lawyers answered.

“Overruled,” the judge said.

On Wednesday, Bankman-Fried’s defense team will likely cross-examine Ellison with an eye toward discrediting her. In his opening argument last week, lead lawyer Mark Cohen said Ellison ignored instructions from Bankman-Fried to place hedges on Alameda’s trading that could have staunched some of its bleeding.

The excitement around Ellison’s testimony was palpable in the press corps. Reporters began arriving at the Daniel P. Moynihan federal courthouse well before sunrise for a chance to see Ellison in person.

Gary Wang, continued

Ellison took the stand Tuesday immediately following testimony from fellow insider Gary Wang, the quiet coder who last week told the court he wrote much of the programming that enabled FTX’s fraud.

Defense attorney Christian Everdell opened Tuesday’s proceedings by continuing his cross-examination of Wang, asking a number of questions about what happened in November 2022, the month FTX collapsed, and his subsequent conversations with prosecutors.

Everdell also hinted at a potential defense strategy, asking about Ellison’s decision not to hedge Alameda’s positions.

“It was Ellison’s decision not to hedge, right?” he asked.

“Ellison was the CEO,” Wang said. “I don’t know who made the decision.”

One area of interest was Wang saying he signed a number of promissory notes for loans worth tens of millions of dollars from Alameda.

Judge Lewis Kaplan asked what the $35 million in one loan was for. Wang said it was for a company Bankman-Fried wanted to invest in.

The judge followed up, asking if there were occasions where Bankman-Fried wanted to invest in companies but had someone else do it.

FTX co-founder Gary Wang, center, near the federal courthouse in Manhattan as he was set to testify again on Oct. 10, 2023 (Victor Chen/CoinDesk)

“Sam said something about not wanting this to come directly,” Wang said, before cutting himself off briefly.