Caroline Ellison, the former Alameda Research CEO and ex-girlfriend of Sam Bankman-Fried – and the star witness in the government’s case against the disgraced crypto wunderkind – will begin her testimony on Tuesday. It’s expected to be the most consequential day of testimony yet in Bankman-Fried’s high-stakes criminal trial.

A 28-year-old Stanford grad whose on-and-off-again romantic relationship with Bankman-Fried spanned several years, Ellison was the CEO of Alameda Research – the crypto trading firm established by Bankman-Fried – as it allegedly received $8 billion in misappropriated FTX user funds.

When lawyers kicked off their opening arguments on Oct. 4, no one other than Bankman-Fried himself featured more prominently than Ellison.

When Ellison was CEO, Bankman-Fried “was using her as a front,” U.S. Attorney Thane Rehn told the jury last week. “In reality, he was still calling the shots at Alameda, and he came up with a scheme to take money from FTX and give it to Alameda.” As for what to expect from her testimony, Rehn told the jury that Ellison would “tell you about how she and the defendant stole the money that customers entrusted to FTX and used it to make investments through Alameda.”

Bankman-Fried’s lawyers, in turn, have suggested Ellison may be the real responsible party for Alameda’s collapse, painting a picture where he, occupied with running FTX and his other tasks, delegated his trading firm’s operations to his handpicked lieutenant.

During cross-examination they may grill her on her managerial decisions.

Ellison was far from an unwitting front-person during her time at Alameda, said Mark Cohen, Bankman-Fried’s lead attorney, in his opening argument in defense of Bankman-Fried. Instead, she was firmly in control of the reins at the trading fund – and her poor leadership, according to Bankman-Fried’s lawyers, is what ultimately placed the firm into dire financial straits. At one point, “as the majority owner of Alameda, Bankman-Fried spoke to Ms. Ellison, the CEO, and he urged her to put on a hedge,” Cohen told the jury. “She didn't do so at the time,” but if she had followed Bankman-Fried’s advice, she “would have offset some of this.”

Other court filings suggest Cohen and his team may seek to try to discredit – to an extent – Ellison as a witness by emphasizing that she is cooperating with prosecutors in hopes of a lighter sentence and by leaving open a door to cross-examine her about possible recreational drug use.

A witness's recreational drug use might affect his or her recollections, defense attorneys wrote in a filing, and “drug use that impaired an employee’s performance of duties in a manner that could have affected the accuracy of company records or the reliability of contemporaneous statements may also be relevant not just to credibility but also to important factual issues.”

While defense attorneys didn't say they were specifically referencing Ellison, she has famously tweeted about using amphetamines.

Origins

Bankman-Fried established Alameda Research, a cryptocurrency trading firm, years before founding FTX, the crypto exchange platform that imploded in November 2022. He ran it for a time, before handing control over to Ellison and Sam Trabucco, who operated the company as co-CEOs until August 2022. Trabucco resigned, and Ellison took over as sole CEO.

The two companies were supposed to operate separately. Last week, however, former FTX Chief Technology Officer Gary Wang testified that the exchange “gave special privileges to Alameda Research on FTX which allowed it to withdraw unlimited amounts of funds from the platform, and we lied about this to the public.”

Prosecutors say that Bankman-Fried – with cooperation from Ellison and a small cadre of insiders – secretly used these special privileges to siphon FTX user deposits into Alameda, and subsequently lost that money through a series of crypto gambles, venture investments, political donations, personal expenditures and other transactions.

Altogether, approximately $8 billion of FTX user money landed in Alameda’s coffers while Ellison was serving as the trading firm’s head, witnesses said in court. It remains unclear how much money will ultimately be recoverable for FTX’s creditors.

Ellison has been expected to testify against Bankman-Fried since December 2022, when she pleaded guilty to two counts of wire fraud and five counts of conspiracy. Judge Lewis Kaplan, who is overseeing the trial, revoked Bankman-Fried’s bail after prosecutors accused him of leaking Ellison’s personal diaries to The New York Times this past summer – a move that Kaplan said amounted to witness tampering.

Ellison’s plea agreement waived her of any charges except criminal tax violations, provided she fully cooperated with the U.S. Attorney's office.

Nikhilesh De contributed reporting.