Sam Coins and Ellison-Bankman-Fried: Two Years of Trading with FTX in 2021 and 2022 After a Bully Bubble
There was a document that had been shared by Ellison and Bankman-Fried that showed his comments in bubbles. Ellison was worried about both the leverage and presenting on the balance sheet. Bankman-Fried had responded with a note that said it could also get worse.
When Bankman- Fried bought back FTX stock in the summer of 2021, customer funds were used. Bankman-Fried told Ellison it was “really important,” otherwise “Binance would do things to mess with FTX.” Ellison claims that she told him that Alameda didn’t have enough money. Ellison has recalled an amount of $1 billion for the first time. She said Bankman-Fried was the CEO of FTX.
The problem was not really the math but the randomness of it. Ellison assumed that Alameda could borrow $1.8 billion in normal dollars and 1.5 billion in coins from FTX. A row labeled “FTX borrows” in the spreadsheet is what Ellison said were customer funds.
Bankman-Fried was involved with a number of Sam coins, one of which was called “FTT”, and he owned a lot of them. The coins would be worth less than what the balance sheet showed because selling them all at once would cause the prices to go up. She was told by Bankman-Fried to put the coins on the balance sheets she saw from Alameda.
Ellison found that the $3 billion investment, as conceived, “would put Alameda in a significantly riskier position and make it much less likely or almost impossible that we would be able to pay off our loans if all of our loans were called at once.”
Ellison had a more personal relationship with Bankman-Fried. (A juror who’d been asleep for a discussion of the FTT token woke up when she started discussing it.) The two started sleeping together in the fall of 2018, on and off. Bankman- Fried was the CEO at the time, and she was a trader. They didn’t date until later — twice. The first relationship lasted from the summer of 2020 through the summer of 2021, and they kept it a secret. Some people learned about it, as they usually do. The second time, from the fall of 2021 until the spring of 2022, they lived together.
Ellison recalled Bankman-Fried’s affection for games of chance — and his tolerance for risk. She remembered that he once said that he would be willing to lose $10 million because he had the chance to win $10 million if he drew heads.
As Bankman-Fried and his deputies worked behind the scenes to find ways to pay back billions of dollars in loans owed by Alameda, Bankman-Fried was making public pronouncements that were at odds with what was really happening. He claimed his businesses were fine on social media.
Ellison listed off the crimes she had pleaded guilty to, and said that Bankman-Fried directed her to commit them. (Fraud, conspiracy to commit fraud, and money laundering, in case you were wondering.) “We ultimately took about $14 billion, some of which we were not able to pay back.” She tilted her head down to answer the questions, then lifted her head when she’d finished her answer.
When the prosecution asked Ellison if she could identify Sam Bankman-Fried for the jury, Ellison squinted and scanned the room. It took almost a minute for her to find him.
But by the end of the day, that all seemed like a sideshow. Bankman-Fried had been vibrating slightly during Wang’s testimony. During Ellison’s testimony, his bouncing became more noticeable.
Wang didn’t exactly help himself out, either. In previous interviews with the government, Wang had said that market making is important. Wang was saying he didn’t remember and Everdell was giving him his testimony to refresh his recollection. In any event whatever Wang was shown wasn’t submitted as evidence or shown to the court. The jury did the same thing as I did, and it was probably the strongest work the defense has done so far.
Last week Wang testified that Alameda got access to a special credit line and an option to take its balance into the negative without triggering liquidation — something he alleged other accounts at FTX didn’t get. The spot margin program helps users to lend each other assets in margin trading. In those cases, it was possible to have a negative balance in a specific coin. According to Wang, it was not possible to have a negative balance on those accounts and avoid the need to liquidate them. I anticipate the defense will try and get the jurors confused about this.
The defense cross-examined Gary Wang, the chief technology officer of FTX and co- owner of both FTX and Alameda, in the beginning of the day. Christian Everdell, one of Bankman-Fried’s defense attorneys, couldn’t undo the damage of last week’s code review. Wang sounded less reliable because he was able to shake the rust off long enough.
I have ex-boyfriends who refused to give me equity and bragged about how they could become President of the US, but they weren’t CEOs of their sin-eater hedge fund. It was the first day of the stand and I counted my blessings. I wonder if any of the other women on the jury are doing the same.
The trial of the founder of FTX has centered around the testimony of Ellison, who was a top executive in the CEO’s business empire.
Ellison described Bankman-Fried as being “the one who set up the systems that allowed Alameda to take the money, and he was the one who directed us to take customer money to repay our loans.”
She was the former girlfriend of Bankman-Fried, who now faces a raft of criminal charges and could be sentenced to prison for the rest of his life.
Bankman-Fried’s lawyers are justifying the transfer of funds as legitimate loans, but prosecutors believe the money was used to make speculative investments, plug financial holes, and fund Bankman-Fried’s lavish lifestyle.
Bankman-Fried, Ellison, and the Banks of Alameda: A Brief History of the Cooperation Process at the Finsbury FTX
“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.”
When asked why she was so deferential, Ellison noted there was a difficult power dynamic between her and Bankman-Fried.
Ellison testified that Bankman-Fried told her to manipulate spreadsheets to make Alameda’s financial picture look better and to ignore requests for more information.
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 Mohammed bin Laden, who is the Saudi Arabia Crown Prince. The plan, as she detailed it, was to use money from Saudi Arabia to pay back Alameda’s lenders. Funding never materialized.
By the fall of 2022, Ellison said, she and other executives at the company were holding onto hope, however blindly, that they could secure additional financing from someone, or that the price of cryptocurrencies would go up. That, she said, would lift up the value of the assets on Alameda’s books.
According to Ellison, $100 million was transferred to what she believed was a Chinese government official to unfreeze the account.
A colleague’s father worked for the Chinese government and protested during the meeting. Bankman-Fried yelled at the employee to shut up.
Judge Lewis Kaplan, who is presiding over the trial, allowed the use of the testimony to demonstrate the trust and confidence that Ellison and Bankman- Fried had in each other.
But Kaplan also made clear to jurors that an allegation of bribing a foreign official is not one of the charges in this trial. But at a separate trial, expected to take place next year, Bankman-Fried will face charges of bribery and bank fraud.
After prosecutors first called her to the witness stand, everyone stood and faced the two wooden doors at the back of Judge Kaplan’s courtroom. Moments later, Ellison was led down the center aisle to the witness stand.
Ellison testified that she and Bankman-Fried met at the trading firm Jane Street, and that she was a math major at the time. They were both interns, but 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.”
What she has to say about her experience with a man accused of lying to her doctor about her personal trials, and what she might have to tell her
Over the course of hours of testimony, she described in detail personal and professional ups and downs, and the conspiracy of which she has admitted to being an integral part.