How is it worse for Sam Bankman- Fried?

Sam Bankman-Fried was the Mastermind of a Fictitious Cryptolanding Company: Telling a Cryptolender to Run It Like a Bankman

Ellison had given damning evidence tying FTX CEO Sam Bankman-Fried to the conspiracy to take FTX customer funds. There were fake balance sheets, one of which was sent to crypto lender Genesis. After a Genesis representative received the balance sheet, he texted Ellison to tell her he’d spoken to Bankman-Fried — strongly suggesting that Bankman-Fried was aware of the contents of the fake balance sheet. It was not great.

Ellison made a lot of emotional testimony on Tuesday and Wednesday about the mastermind behind a scheme to steal billions of dollars from customers.

Bankman-Fried’s ex-girlfriend was very familiar with both the company and the formercryptocurrencies celebrity who is now facing seven criminal charges and could spend the rest of his life in prison.

The transfer of funds as legitimate loans by Bankman-Fried’s lawyers isn’t the only thing prosecutors are trying to paint as fraud, as they argue that customer money was used to plug financial holes at Alameda, as well as to make speculative investments.

Ellison presented those results to Bankman-Fried, and suggested that the proposed investment would be too risky given the state of Alameda’s finances. But Ellison said Bankman-Fried ordered her to go through with it.

“I handled a lot of day-to-day decisions and responsibilities in Alameda,” she testified. “But for any major decisions, I would always run them by Sam, and I would always defer to Sam if he thought that we should do something.”

She was asked to explain why she was so deferential, and Ellison noted there was a difficult power dynamic between her and Bankman- Fried.

Ellison recalled Bankman-Fried being fond of games of chance and having a tolerance for risk. For example, she remembered how he once talked about being willing to lose $10 million if he drew tails in a coin flip — as long as he had the chance to win more than $10 million if he drew heads.

When an executive at Genesis asked for an updated balance sheet, Bankman-Fried suggested I find some alternate ways to present the information.

She was stressed, Ellison said, and she talked to Bankman-Fried about the company’s inability to pay its loans.

At several times during her testimony, Ellison said Bankman-Fried directed her to manipulate spreadsheets to make Alameda’s financial picture look more favorable and to ignore requests from lenders for additional information.

Ellison created different options, and Bankman- Fried advised her to send a version that minimized the debts and the value of the firm’s holdings of FTT.

The defense suggested that the failure at Alameda was Ellison’s fault and that Bankman- Fried acted according to his knowledge at the time. The prosecution has to show that Bankman-Fried lied. Bankman-Fried was circumspect about what he wrote. He had the company set their Slack and Signal messages to disappear, resulting in a lot of blank Signal chats in previous court exhibits, and again today.

As panic grew among the top ranks of FTX, Bankman-Fried talked a lot about how he could raise more money from lenders and investors, Ellison testified.

She said Bankman-Fried talked about trying to get money from the crown prince of Saudi Arabia. The plan, as she detailed it, was to use money from Saudi Arabia to pay back Alameda’s lenders. But funding never materialized.

The day picked up with Ellison discussing May 2022, when crypto markets entered freefall as the Terra/Luna coins collapsed. Amid the chaos, lenders started demanding their funds back. Telegram was used to communicate with employees at Genesis who were asking Alameda to return its money. There was a lot of calls for loans from across the board. In June, Bankman-Fried directed Ellison to repay the loans using FTX customer funds, she said.

Ultimately, however, FTX and Alameda collapsed, and in short order, FTX declared bankruptcy and Bankman-Fried was arrested. Days later, Ellison pleaded guilty to several criminal charges and agreed to cooperate with federal prosecutors in their case against Bankman-Fried.

Ellison said Alameda paid the Chinese government officials to unfreeze the account, which could have been a bribe.

Ellison described a meeting in which a colleague whose father worked for the Chinese government protested repeatedly. Bankman-Fried yelled at the employee to “shut the f— up,” according to Ellison.

Judge Lewis Kaplan allowed the testimony to be used to show the trust and confidence Ellison and Bankman- Fried have in each other.

Kaplan told the jury that an allegation of bribed a foreign official is not one of the charges in the trial. Bankman-Fried is expected to be charged with bank fraud at a separate trial next year.

Everyone stood and faced the wooden doors of Judge Kaplan’s courtroom after prosecutors called her to testify. Ellison was taken down the aisle to the witness stand.

When the prosecution asked Ellison if she could identify Sam Bankman-Fried for the jury, Ellison stood and squinted, and scanned the room. It took a few seconds for her to locate him.

It has been almost a year since Ellison pleaded guilty to several criminal charges, including counts of fraud and conspiracy, and agreed to cooperate with the U.S. government in its multi-count case against Bankman-Fried.

The daughter of M.I.T. economists, Ellison was a math major at Stanford University, and in her testimony, she described how she and Bankman-Fried met at the trading firm Jane Street. She was an intern and he was a trader.

In 2018, she and Bankman-Fried “started sleeping together on and off,” Ellison told the court. And “in the summer of 2020, we eventually started a romantic relationship.”

Sam Bankman-Fried and the Collapse of his Cryptocurrency Embedded in the Funds. The Correspondence Ends with Reality

She described in detail personal and professional ups and downs, and the conspiracy of which she admitted to being an integral part.

Sam Bankman-Fried was an ambassador of effective altruism and he was a wunderkind. If you’re wondering how he squared those values with his lying, you’re in the wrong place.

Ellison’s second day of testimony delved into the collapse of Bankman-Fried’s empire. During the court sidebars, the lawyers were arguing in front of the judge, and she was not able to answer her questions with the attitude of a student trying to impress her professor. She wore a gray blazer over a white v-necked blouse with black dots tucked into a black skirt, and didn’t quite summon up the appearance of an executive. That made sense. The text messages we saw suggested she made few consequential moves without first consulting Bankman-Fried — not exactly a real CEO.

Ellison knew it wouldn’t be possible. She testified that customer funds had been used to pay off those loans. The exchange wouldn’t have the money if a lot of customers withdrew at once. Ellison said that he was stressed out. “I was in sort of a constant state of dread at that point.”

Bankman-Fried’s defense lawyers seem to be teeing up the notion that the customer funds were still there, just in an investment portfolio. The problem is that putting those funds in an investment portfolio is still stealing the funds. Cryptocurrencies are not banks because they do not lend out customer money. At least, the honest ones don’t.

Ellison told her not to write anything in her paper because she wouldn’t want to see it on the front page of The New York Times. She violated that rule with a set of memos about their relationship. Later, Bankman-Fried would literally leak them to that paper.

She said that he believed in a proactive approach to public relations. He also thought his famously wild hair was “very valuable” and had led to higher bonuses at Jane Street, she testified. In the courtroom, Bankman-Fried visibly shook while she said this. Though Ellison and Bankman-Fried initially had “luxury cars,” Bankman-Fried felt it would be better for his image to drive a Toyota Corolla, so he switched cars.

Ellison said he slept on a bean bag in the office. This had been thrown into question by Bankman-Fried’s college roommate in earlier testimony.

The Charges against Edward J. Bankman-Fried and the Correspondence with the FTX Investigative Commission: Evidence against the Supremum

Ellison explained the problems with shuttering Alameda in his hand-written notes. Among them? Alameda’s job was “market making for shitty things” — which was how Ellison referred to creating liquidity for thinly-traded assets. Alameda was a backup provider for FTX.

Bankman-Fried thought the move was to make bold tweets, but he didn’t want to do it. Instead, Ellison wrote in her own words a version of Bankman- Fried’s original post that began, “Heh, I see someone is really trying to FUD us.”

We saw a remarkable text from Ellison as the collapse was happening. Ellison said this was the best mood he had been in in a year. Bankman- Fried was believed to be the source of the screenshot. Ellison was crying while he looked at the messages. “To be clear,” she said, “that was overall the worst week of my life. There were a lot of moods and feelings that week.

Relief was one of the feelings. She said that it was something that had been in her mind all day. The thing she’d been dreading had happened and “I didn’t have to lie any more.” She felt bad for the people who trusted her and the others. A court clerk gave her a tissue.

The things you write can potentially save you, that’s what it suggested. It is difficult to depict Ellison as the sole decision- maker when she has proof that she did not act alone.

Barbara Fried had an animated conversation with Christian Everdell when she was in the break. Fried was clearly upset with something, and she had a strong opinion of it. Everdell walked off, and Mark Cohen talked to her for a bit after that.

I was asked by a group of people why the reports seem skewed towards the prosecution. There’s an answer for this: the prosecution has put together a strong, comprehensive indictment of Bankman-Fried’s behavior at FTX and Alameda. In response, the defense has done nothing. I don’t know if Cohen and Everdell have bad facts, a bad client, or are simply untalented themselves (or some combination of all three?). I have not yet seen any reason to doubt the very convincing story I am hearing from the prosecution.

Before this case, I had been told that Everdell and Cohen were “workman-like,” which I took to mean that they were unshowy but competent. I now believe that comment was an insult. I have been waiting for a juicy cross-examination, as I live for chaos and drama. I am beginning to think I am not going to get one.

Instead, I got a sad trombone. Cohen was disorganized and boring the jury. At one point, two different jurors appeared to be asleep.

Midway through the morning I began wondering if there was a mercy rule for cross-examinations. Danielle Sassoon ran an effective direct examination that made the narrative easy to follow. By contrast, Cohen appeared to be bumbling around, taking up one topic only to abruptly pivot. Sure, we’re still in the prosecution’s case, but Cohen had all night to prepare his lines of questioning.

We established that Bankman-Fried had a much larger appetite for risk than Ellison. I thought this might be the beginning of something, but it was quickly dropped. We have established that Ellison avoided stress while Bankman- Fried sought it, and therefore they had different approaches to media. Okay?

Eleven Minutes of a Closed Business: An Accountant’s Report on an Accounting Candidate at Alameda in 2021

We discovered that there was one accountant at Alameda in 2021, and two more junior accountants were hired in 2022. Apparently, Alameda had trouble retaining accountants, which I was not surprised about; CEOs don’t do the balance sheets for their companies. I was expecting this to be pursued further, but it was dropped.

There were rather a lot of sidebars during the cross-examination, to the point that when one occurred, several jurors looked entertained. The prosecution had a complaint that Bankman-Fried wasn’t happy with Ellison’s answers according to the court transcript. (I did observe him occasionally shaking his head, and sometimes quivering at points during her testimony, but didn’t have a view of his face.)

As we were approaching lunch, several jurors looked annoyed, and Cohen looked clueless. He asked Ellison to define what it meant to buy on the way down. (It means what you think it means, to purchase an asset that’s losing value.) This appeared to puzzle her. Cohen brought up things that she had not said, sometimes forgetting what she had testified to. Ellison, like Adam Yedidia before her, was interested in making sure the question was clear and precise and she was fastidious about making sure that her answer was precise.

When Sassoon got up for a quick redirect, she demolished any points Cohen had attempted to make. After Ellison left the stand, I was not as fond of her cleverness. She was able to set a trap for Cohen.

On the direct examination, near the end, Sassoon asked about an Alameda all-hands meeting, without bringing up many specifics. Cohen asked Ellison what topics were discussed in the meeting, but did not provide any details. It allowed for Sasson to get to work in that Ellison admitted to taking billions of dollars from FTX customers.

There had been an open question of whether jurors would hear the tapes of Ellison’s remarks. The testimony made a case for the prosecution to get those tapes. The judge ruled in favor of the jury hearing the recordings and we briefly recessed.

The late afternoon was short and fast. Christian Drappi, a former Alameda software engineer who looked like a handsome funeral director in a black suit and tie, testified briefly to set up the tape. Ellison confessed the theft of customer funds to Drappi and several other employees when Changpeng Zhao announced on social media that he was going to acquire FTX. The all-hands took place the following day, and was secretly recorded by an employee who’d joined Alameda three days before.

In a small miracle, the government was able to get the founder and former CEO of BlockFi on the stand, and he blamed FTX’s bankruptcy for the lender’s subsequent insolvency.

SBF is on trial for fraud and money laundering, not for bribing Chinese officials, but the most lurid and surprising part of Ellison’s testimony took the jury and gallery on an absurd digression.

In 2021, Chinese officials froze Alameda’s account on Chinese crypto exchanges as part of their money-laundering investigation into someone else. The FTX and Alameda teams made risky moves in order to recover the money. The accounts were created to execute trading strategies that were supposed to move the money. (Said information about the accounts came from FTX executive Ryan Salame, Ellison testified, which raises some questions of its own.)

“The thing” upset Alameda employee Handi Yang, the daughter of a Chinese official. When Yang wouldn’t stop arguing against the idea, SBF yelled at her to “shut the fuck up,” Ellison claimed. Later, in a group chat with SBF, Ellison, and another Alameda employee, the other employee joked about Yang’s father “turning us in immediately,” to which SBF responded: “lol.” This exhibit also resulted in Ellison explaining the meaning of “lol” to the judge and jury.

Today, at the end of Ellison’s testimony, Danielle Sassoon asked her why she had qualified her answer. The “I guess,” explained Ellison, was just a vocal tic. It was not a question. She alleged that it was Bankman-Fried’s idea the entire time.