Caroline Ellison testifies she committed fraud with Sam Bankman-Fried

Caroline Ellison, the former chief executive officer of Sam Bankman-Fried's hedge fund Alameda Research, testified on Tuesday that she committed fraud together with the former crypto mogul.

Ellison, who said she previously dated Bankman-Fried, is one of three former members of the 31-year-old former billionaire's inner circle who have pleaded guilty to fraud charges and agreed to cooperate with the Manhattan U.S. Attorney's office.

"Alameda took several billion dollars of money from FTX customers and used it for our own investments and to repay debts that we had," said Ellison, one of the trial's most highly anticipated witnesses.

She said Bankman-Fried directed Alameda to take around $10 billion in FTX customer money to repay loans, and that he told her to share a misleading Alameda balance sheet with the fund's lenders that made the fund's finances look less risky than was truly the case.

When asked why FTX ran out of money in November 2022, when the exchange declared bankruptcy, Ellison said, "Alameda had taken it to make our own investments and to repay our lenders."

Ellison is expected to continue testifying around 2 p.m. EDT (1800 GMT) after a lunch break. She and Bankman-Fried did not look at each other as she walked past him to leave the courtroom after the first portion of her testimony.

Bankman-Fried has pleaded not guilty to two counts of fraud and five counts of conspiracy, and has argued that while he made mistakes running FTX, he never intended to steal funds.

In his opening statement last week, defense lawyer Mark Cohen told jurors to question whether cooperating witnesses like Ellison were putting a new, nefarious spin on old decisions by Bankman-Fried which they had originally agreed with.

Gary Wang, FTX's former technology chief, testified that Bankman-Fried directed him to allow Alameda to run a negative balance on FTX and borrow up to $65 billion from the exchange - privileges other customers lacked. A third cooperating witness, former FTX engineering chief Nishad Singh, is also expected to testify at the trial, which could last up to six weeks.

Jurors have already heard plenty about Ellison. Cohen in his opening statement said Bankman-Fried had advised Ellison to hedge Alameda's bets against a downturn in cryptocurrency markets, but that she did not do so.

Without referring to Ellison by name, prosecutor Thane Rehn in his opening statement said Bankman-Fried had installed her as Alameda's chief as a "front," but that Bankman-Fried was still calling the shots.

While Bankman-Fried has written blog posts and granted interviews to reporters since his December 2022 arrest, Ellison has maintained a low profile since she pleaded guilty that same month.

In July, the New York Times published a story citing Ellison's private writings from before FTX's collapse in which she described feeling overwhelmed at work and hurt by a breakup with Bankman-Fried. After defense lawyers acknowledged that Bankman-Fried had shared the writings with a Times reporter, U.S. District Judge Lewis Kaplan revoked his $250 million bail and sent him to jail for probable witness tampering.