The founder of FTX thought that lying and stealing were OK because of his philosophical outlook on the world, his ex-girlfriend told a jury today.

Caroline Ellison said that Sam Bankman-Fried was a utilitarian and believed that deceiving people was okay if it led to a positive outcome for the world.

Ellison said that his attitude rubbed off on her and that over time she became ‘more willing to do things like lie and steal’ from customers of FTX, a failed crypto exchange.

The 28-year-old daughter of two MIT economics professors testified at a court in New York as the star witness for the prosecution against Bankman-Fried.

She was head of Alameda’s sister company FTX, which was allegedly used as a $10billion slush fund paid for by FTX customers’ money.

Caroline Ellison took the stand again on Wednesday in ex-boyfriend Sam Bankman-Fried’s fraud trial

Ellison claimed that Bankman-Fried is a utilitarian and his philosophical outlook made her ‘more willing’ to lie and steal over time

‘He didn’t think rules like don’t lie or don’t steal fit into that framework,’ Ellison testified on Wednesday 

FTX, which was worth $32 billion at its peak, collapsed in November last year amid falling crypto prices and media reports raising questions about its finances.

In court assistant US Attorney Danielle Sassoon asked Ellison: ‘In the course of working with the defendant, did he talk to you about the ethics of lying and stealing?’

Ellison said: ‘He was a utilitarian and believed that the ways people try to justify rules like ‘don’t lie’ and ‘don’t steal’ in utilitarianism don’t work.

‘The only moral rule that matter was to maximize utility, trying to create the greatest good for the greatest number of beings.

Asked how lying and stealing fit into this, Ellison said: ‘He didn’t think rules like don’t lie or don’t steal fit into that framework.’

Sassoon asked how that attitude affected Ellison.

She said: ‘It made me more willing to do things like lie and steal over time.

‘When I started working at Alameda I don’t think I’d have believed if you told me a few years later I’d be sending false balance sheets to our lenders. Over time I think it was something I became more comfortable with’.

Ellison said that in June 2022 crypto prices tumbled and lenders started to ask FTX for their money back.

The jury was shown messages from employees of investment company Genesis sent on July 13, 2022 in which they demanded the return of $400 million in loans to FTX.

That day Ellison helped to draw up a spreadsheet of Alameda’s balances which showed it owed $20 billion to FTX.

A bug in the computer systems meant that this was out by $8billion and that the actual figure once the bug was fixed was around $13billion.

Assistant US Attorney Danielle Sassoon asked: ‘What was your mental state when you realized Alameda had billions of dollars in debt?’

Ellison said: ‘I was in a constant state of dread at that point.

‘I knew we’d have to take the money from our FTX line of credit and that could be called at any time.

‘Every day I was worrying about the possibility of customer withdrawals from FTX and the possibility of this getting out.’

Ellison called the period a ‘time of crisis’ for Alameda and was an ‘extremely big problem for us.’

Asked how lying and stealing fit into this, Ellison said: ‘He didn’t think rules like don’t lie or don’t steal fit into that framework’

Ellison called the period of time when Alameda’s financials were collapsing a ‘time of crisis’ for Alameda and was an ‘extremely big problem for us’

Ellison told the jury that Bankman-Fried ‘directed me’ to commit Fraud, and all the crimes ‘were committed with Sam’

She told the jury that Bankman-Fried told her to repay the loans and she understood that he was ‘telling me to use FTX customer funds’ to do so.

According to Ellison, customers’ funds were the ‘only source of capital large enough to repay our loans’.

She told the jury: ‘I considered that to be the only option on the table’.

On the spreadsheet Ellison described the money that Alameda owed FTX as ‘FTX Borrows’ instead of ‘FTX customer money’.

She said that Bankman-Fried told them not to write it was FTX customers’ money as we should be ‘careful what we put in writing’ as it ‘might get us in legal trouble’.

Ellison said that the situation was ‘extremely concerning’ and told the jury: ‘I was really worried FTX customers would try to withdraw a bunch of money at once’.

She feared that they would be ‘found out’ and ‘everything would come crashing down’, she told the jury.

Asked why she continued to repay loans, Ellison said: ‘Because Sam told me to and because I thought if Alameda defaulted on its loans and went bankrupt that would be really bad.

‘If we used customer money we could fix things somehow, Sam be able to raise money to repay our loans.

Ellison admitted that ‘I thought it was wrong’ but she did it anyway.

She said that for the next couple of months she was ‘living in a constant state of worry’ that FTX customers’ would pull their money out.

FTX paid back around $5 billion in loans that were all paid for with customers’ money, Ellison said.

Sam Bankman-Fried dated Caroline Ellison and appointed her as head of FTX’s sister company Alameda Research 

Bankman-Fried faces up to 115 years in prison if convicted on a slew of fraud charges

The jury was shown additional messages from Genesis in which it demanded its $400 million back. Genesis asked to see Alameda’s balance sheets to understand what the holdup was.

Ellison told the jury that she showed Alameda’s balance sheet to Bankman-Fried and they both agreed that it looked so ‘bad’ they couldn’t send it to Genesis.

They were worried that Genesis would recall other loans and that the wider crypto industry would find out.

Bankman-Fried told Ellison to prepare some ‘alternative ways of presenting the information’, she told the court.

Caroline Ellison and Bankman-Fried’s sexual relationship continued for multiple years while they both spearheaded the now-disgraced crypto firm FTX

She said: ‘He was directing me to come up with ways to conceal the things on our balance sheet we both thought looked bad. I prepared a balance sheet with seven different balance sheets.

‘I wasn’t sure what the best thing to send to Genesis would be. I didn’t really want to be dishonest but I didn’t want them to know the truth but I thought I’d prepare a variety of things and ask Sam what he wanted to do’.

The jury were shown the original and accurate balance sheet which showed ‘exchange borrows’ of $9.9 billion – the money that Alameda had taken from FTX customers.

There was another $4.5 billion that had been loaned to senior executives which was called ‘related party loans’.

In the balance sheet that was sent to Genesis both of these numbers had been deleted.

The loans were moved into longer term loans even though they were not long term, Ellison told the jury, while the ‘exchange borrows’ essentially vanished.

The overall liabilities went down from $15billion to around $10billion.

Ellison said: ‘The intended effect was to make AL less risky than it was and to hide the fact we were borrowing around $10billion from FTX customers’.

When she showed the revised balance sheet to Bankman-Fried said it ‘looked good’ and told Ellison to send it to Genesis, which she did.

Genesis was not convinced and came back asking for $500 million in loans to FTX to be repaid.

Ellison admitted that the spreadsheet she sent to Genesis was ‘dishonest’ because it ‘made us look much safer than we actually were’.

Bankman-Fried told Ellison to prepare some ‘alternative ways of presenting the information’, she told the court 

Caroline Ellison is pictured leaving Manhattan Federal Court on Tuesday 

Ellison described how in August 2022 she and Bankman-Fried had a difficult conversation in the study of his $30 million penthouse apartment in the Bahamas.

By that point it was clear that Alameda had borrowed more than $10 billion from FTX’s customers.

Ellison said Bankman-Fried told her it was ‘my fault’ and she was ‘largely responsible for the financial situation at Alameda’.

She said: ‘He was speaking pretty wildly and strongly. I got very upset, I started crying and I had trouble continuing the conversation.

‘(He said) that it was my fault Alameda had gotten into that situation’.

Ellison said that she ‘absolutely could and should have done things differently’.

But she told the jury: ‘The fundamental reason was we’d borrowed these billions of dollars in loans and used them for illiquid investments’.

Assistant US Attorney Danielle Sassoon asked Ellison: ‘Whose decision was that?’

Ellison said: ‘It was Sam’s’.

Sam Bankman-Fried’s parents, Joseph Bankman and Barbara Fried, put on a united front outside Manhattan Federal Court on Tuesday after hearing testimony in the fraud case against their son 

Ellison told the jury she became concerned when she discovered that Alameda had loaned billions of dollars to Bankman-Fried, FTX co-founder Gary Wang and Nishad Singh, its chief engineer

The court has previously heard that Ellison and Bankman-Fried began sleeping with each other in 2018 and began dating properly in the summer of 2020.

Their relationship lasted a year before they broke up but got back together a few months later.

They finally broke up for good in the summer of 2022, when the scale of FTX’s problems became apparent.

Ellison was appointed co-chief executive at Alameda in 2021 – she and Bankman-Fried were ‘on a break’ at the time – and chief executive in 2022.

In her testimony Ellison has said that she broke up with Bankman-Fried for good because he was ‘not paying attention to me’.

The two have not looked at each other in court despite sitting a few feet apart.

Testimony has shown that Ellison was paid significantly less than the three other senior men at FTX.

She has told the court that her base pay was $100,000 and her biggest bonus was $20 million.

By comparison, securities filings have shown that FTX’s chief engineer Nishad Singh was paid $587 million, its co-founder Gary Wang was paid $246 million and Bankman-Fried got $2.2 billion.

Bankman-Fried is facing 115 years in jail and has denied 13 counts of fraud and money laundering.

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