The latest FTX-related sentencing saw Caroline Ellison, the former co-CEO of Alameda Research, handed two years behind bars for her role in the exchange’s spectacular collapse. Ellison is expected to be in prison by November 7.

Ellison’s sentence was so lenient thanks to her lending the investigation her full cooperation. Indeed, the judge presiding over the case noted that he hadn’t seen a cooperator “quite like Ms. Ellison.”

However, he also made it clear that due to the severity of the case, remorse and cooperation aren’t a complete “get out of jail free card.” 

She had pleaded guilty to seven counts of fraud and conspiracy and became the third individual involved in FTX’s crimes to be jailed. 

Here’s a chart of every indicted FTX and Alameda official sentenced, or waiting to be sentenced. 

Read more: Which FTX and Alameda executives are going to prison and when?

Collectively, Sam Bankman-Fried, Ryan Salame, and Ellison are serving 34.5 years or 414 months. Gary Wang and Nishad Singh are due to be sentenced in the coming months having both testified against Bankman-Fried.

Wang, a former CTO at FTX and close friend of Bankman-Fried, cooperated with prosecutors and pleaded guilty to four charges including wire fraud and conspiracy to commit securities fraud.

Singh was FTX’s director of engineering and also cooperated with prosecutors. He pleaded guilty to six charges, including conspiracy to commit money laundering and make unlawful political contributions.

Both have stated that they hope to avoid jail time for their crimes. A whole raft of other individuals, including Bankman-Fried’s parents, lawyers believed to have known about criminal activity, and other execs, have also not been indicted.

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The post CHART: Everyone sentenced from FTX and Alameda appeared first on Protos.

Caroline Ellison, the former co-Chief Executive (CEO) of Alameda Research, has been sentenced to two years in prison for her role in the approximately $8 billion stolen from FTX customers.

The 29-year-old pleaded guilty to seven counts of fraud and conspiracy in the lead-up to former FTX chief Sam Bankman-Fried’s criminal trial. Despite facing a maximum 110 years, her lawyers have argued that Ellison’s key testimony for the prosecution should have resulted in no prison time at all.

Ellison’s prison sentence is far less than her ex-flame Bankman-Fried, who received 25 years behind bars. US District Judge Lewis Kaplan explained that Ellison has been particularly cooperative, stating, “I’ve seen a lot of cooperators in 30 years. I’ve never seen one quite like Ms. Ellison,” though he made sure to acknowledge her role in the fraud.

Read more: Executive texts claim Deltec moved customer funds from FTX to Alameda

This level of cooperation was acknowledged by the prosecutors, who wrote in their sentencing submission that “the Government cannot think of another cooperating witness in recent history who has received a greater level of attention and harassment” and that despite this fact, she “steadfastly remained candid and dedicated to telling the truth—as embarrassing as it often was for her—and in assisting with bringing the most culpable party to justice.” 

The former Alameda chief has also been cooperating with the ongoing bankruptcy, providing significant support to its recovery efforts.

Two FTX executives, Gary Wang and Nishad Singh, are also scheduled to be sentenced later this year after pleading guilty to related crimes. Additionally, Ryan Salame, another FTX and Alameda Research executive, will be reporting to prison next month for his over seven-year long sentence.

Got a tip? Send us an email or ProtonMail. For more informed news, follow us on X, Instagram, Bluesky, and Google News, or subscribe to our YouTube channel. Quotes in bold are our emphasis.

The post Caroline Ellison sentenced to two years for FTX-Alameda fraud appeared first on Protos.

Caroline Ellison, the former CEO of Alameda Research, is set to be sentenced by a Manhattan federal court tomorrow.

Ellison has previously pled guilty to conspiring to defraud FTX customers alongside her ex-romantic partner and boss Sam Bankman-Fried (SBF). Bankman-Fried was sentenced in April to 25 years in prison.

Now 29 years old, Ellison has pleaded guilty to two counts of conspiracy to commit wire fraud, each with a maximum prison sentence of 20 years; two counts of wire fraud, each with a maximum sentence of 20 years; one count of conspiracy to commit money laundering with a maximum sentence of 20 years; one count of conspiracy to commit commodities fraud with a maximum sentence of five years; and one count of conspiracy to commit securities fraud with a maximum sentence of five years.

Despite the severity of her crimes and the staggering tally of maximum sentences, practical guidelines and her extensive cooperation with authorities mean that Ellison might not actually serve any time in prison. Her cooperation with authorities — including testifying against FTX founder SBF during his trial last year — helped prosecutors convict him on all seven counts of his fraud.

Caroline Ellison’s sentencing recommendations

Looking ahead to tomorrow’s sentencing, there seems to be widespread agreement about a recommendation of leniency.

Defense’s recommendation: Obviously, Ellison’s own legal team has asked for a sentence that does not involve prison time. Specifically, they have requested three years of ‘supervised release’ without incarceration.

At tomorrow’s sentencing, her lawyers will argue that her prompt, thorough, and mostly unabridged cooperation with US authorities concerning the collapse of FTX and Alameda Research warrants a lenient sentence.

Probation Department’s recommendation: The Probation Department has recommended time served along with three years of supervised release, citing Ellison’s “extraordinary cooperation” with the government and her previously clean criminal record.

Prosecution’s recommendation: It is the job of US prosecutors to pursue just penalties as punishment for crimes and to deter future criminal acts. Although a review of public sources does not indicate their specific recommendation regarding Ellison’s sentencing tomorrow, federal prosecutors have admitted to Ellison’s ‘remarkable cooperation’ and described her collaboration as “significant” and “commendable.”

Read more: Caroline Ellison delivers the financial smut we’ve been waiting for

Ultimately, discretion is given to Judge Lewis Kaplan to rule on Ellison’s punishment for her admitted crimes. Despite her cooperation, Ellison committed many crimes against Americans and played a pivotal role in one of the largest, multibillion-dollar fraud schemes in US history.

Although the outcome could range from a brief prison term, supervised release, or probation, legal experts are unanimous in their prediction that she will receive far less than the 25-year sentence handed to her former boss.

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The post What to expect at Caroline Ellison’s sentencing tomorrow appeared first on Protos.

X owner Elon Musk has confirmed that he’s behind a secret account that engaged with explicit posts about former Alameda Research CEO Caroline Ellison, posted odd responses to MicroStrategy’s Michael Saylor, and interacted with off-the-wall FTX conspiracies, a lawsuit transcript reveals.

Musk is being sued by 22-year-old college grad student Ben Brody over posts he shared supporting a right-wing conspiracy theory that falsely linked Brody to a clash of right-wing groups in Oregon.

During a March deposition, Musk was grilled by Brody’s lawyer, Mark Bankston and admitted that he owns the @Ermnmusk X account. 

The account has posted various controversial takes and wild claims, even reportedly engaging with conspiracy theories alleging that FTX acted as a middleman in laundering funds through Ukraine on behalf of US democrats. 

It also responded to a post sexualizing Caroline Ellison, posting “I librarians” underneath a picture of the former Alameda CEO. Musk also responded to a post from MicroStrategy’s Michael Saylor, asking him “Do you like Japanese girls?”

Musk claims it was a ‘test account’

It was suggested last year that @Ermnmusk was run by the Tesla boss after he shared a screenshot revealing its profile picture on his device. Additionally, the account also made posts while in character as X Æ A-12, Musk’s now four-year-old son. 

When Bankston asked Musk about the account, he said, “I would not use this account,” adding “It was just used for — for testing.”

Read more: We now know when Elon Musk got scared and sold Tesla’s bitcoin

Brody’s lawsuit accuses Musk of defaming him in a series of X posts. In one of these posts, Musk responded to a blogger’s theories about the right-wing clash by saying “Looks like one is a college student (who wants to join the govt) and another is maybe an Antifa member, but nonetheless a probable false flag situation.”

However, Brody was in California when the groups clashed during an Oregon LGBTQ pride event. The evidence linking Brody seemingly relied on his resemblance to an individual pictured at the clash. Brody claims Musk’s posts led to individuals harassing himself and his family to the point where they had to flee their home.

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The post Elon Musk burner X account trolled Caroline Ellison and Michael Saylor appeared first on Protos.

Deltec Bank and Trust, the Bahamian bank that services the crypto industry, has been accused of knowingly aiding in the diversion of FTX customer deposits to Alameda Research and extending Alameda Research billions of dollars in credit to facilitate its issuance of popular stablecoin Tether. This is according to a motion filed in a class action lawsuit.

The allegations are based on messages and testimony from former Alameda Research chief exec Caroline Ellison who agreed to share these messages and testimony to settle the lawsuit against her. 

Deltec has served for years as one of the known banking partners for Tether, even publicly asserting the value of the stablecoin’s reserves. 

Alameda Research was a trading firm that misappropriated billions in customer assets from FTX, a cryptocurrency exchange with significant overlapping leadership.

The lawsuit specifically alleges that “Deltec…individually identified incoming FTX customer deposits and manually transferred those deposits into Alameda’s Deltec bank account daily and by way of texting one another” and “knew those incoming deposits belonged to FTX customers.”

It also claims that this behavior continued “after Deltec learned of Alameda’s looming insolvency and FTX’s inevitable collapse.” 

Furthermore, it alleges that Deltec failed to uphold its know-your-customer (KYC) and anti-money laundering (AML) regulations. These alleged breaches included sharing “regulatory compliance questions and customer information with FTX in violation of banking regulations and law — essentially, providing to FTX a playbook for evading regulatory scrutiny” — and exempting FTX and Alameda from regulatory mandated KYC and AML requirements wholesale.

It’s also claimed that the bank fabricated documents on behalf of FTX and Alameda to “sidestep those requirements in other ways.”

Additionally, the lawsuit claims that “Moonstone’s membership into the Federal Reserve, a critical entry point for FTX to the US banking system, was obtained by way of deceit and for FTX’s benefit.” Moonstone Bank was purchased by Deltec’s chairman, Jean Chalopin, and Alameda Research was the largest investor in the tiny bank. The lawsuit alleges that FTX had “their sights set on developing a bank owned and operated by FTX Group.”

Read more: The company that created Moonstone Bank is no more

Transfers between FTX and Alameda Research

FTX and Alameda Research’s chief point of contact at Deltec was apparently Gregory Pepin, who at that point was serving as the bank’s deputy CEO. In this role, he went above and beyond to service FTX, and Alameda, even noting to them that sometimes he went “outside the guideline to rush things lol.” Pepin was even willing to “populate invoices” to help manage wires from FTX customers. 

In order to manage incoming wires from FTX customers, Pepin would sometimes declare that it was “MOOONNNEEEYYY TTTIIIIMMMMEEEE” in the Alameda Research Telegram chat to signal that it was time to reconcile FTX customer deposits coming into Alameda bank accounts. This hands-on service differentiated Deltec from its competitors, with Pepin once joking, “What Silvergate don’t work at 10:38 pm and postpone their evening movie to review wire?”

At one point, he even observed, “lol don’t tell me Silvergate is slower than us under hurricane preparation and skeleton team lol.”

In his role, Pepin was at the beck and call of Alameda team members, who would regularly request that funds be transferred internally between FTX and Alameda bank accounts at Deltec. 

This behavior continued even once funds available started to come up short, with Pepin sometimes needing to encourage Alameda to deposit more cash to prevent problems. At one point, he said, “We need 200k cash lol as you are short 200k for the 400k…confirm when you guys push it as delchain is annoying me with the settlement lol.”

At times, this even affected the ability for FTX customers to withdraw, with Pepin messaging, “Hey guys for withdrawal we may need a little bnit [sic] of cahs [sic] for this one.” This was not a one-time occurrence, with repeated requests for additional funds to cover other withdrawals.

Even once Alameda’s insolvency became a matter of public debate, Pepin was still willing to publicly vouch for the firm, at one point stating, “There is people coming to me about alameda insolvency shit. I’m pushing back and say its BS. However seems to grow a bit those FUD. Are you ok if I come ou[t] more publicly (attacking back people on Twitter when I see) and divert [attention] with people ping me?”

Tether scheme

The lawsuit additionally alleges that Deltec held a central role in enabling Alameda to issue billions of dollars worth of Tether. At its most basic Deltec was often responsible for making the transfers between the accounts of Bitfinex, Tether, and Alameda in order to facilitate the issuance and redemption of USDT. 

The lawsuit confirms that Alameda minted “more than $40 billion USDT,” confirming earlier Protos reporting about the scale of Tether issuance.

Alameda traders recognized they were issuing a significant quantity of USDT, with one communicating in the group chat that “You must feel like a dealer sometimes with how eager we are for the tethers I bet,” to which Tether chief financial officer Giancarlo Devasini responded, “I just wish you didn’t wait until you have no more before filing [sic] up again.”

The lawsuit alleges that Alameda was regularly issuing new USDT once it had successfully sold them for a premium, likely through its network of trading desks, including Genesis Block. 

Eventually, Deltec facilitated the more rapid issuance of USDT by allegedly extending a de facto revolving line of credit to Alameda. Pepin allegedly effectively allowed Alameda several days to pay for transfers it made to Tether, a feature Alameda immediately took advantage of, eventually breaking $2 billion borrowed. This arrangement was allegedly undocumented with Pepin asking Alameda to keep the arrangement confidential. 

A completely hypothetical series of transactions could look something like this:

• Deltec transfers $1 billion to Tether from Alameda’s line of credit
• Tether transfers 1 billion USDT to Alameda.
• Alameda sells USDT through exchanges like Bitfinex and over-the-counter trading desks like Genesis Block
• Alameda transfers proceeds from sales to Deltec, paying back the credit that was extended to them

This pseudo-line of credit helped Alameda Research become the largest issuer of USDT.

Read more: Deltec, SBF-linked billionaire Joe Lewis set for guilty plea to insider trading

June seizure

The lawsuit details how, when “Alameda redeemed USDT or withdrew from Bitfinex, the proceeds would first flow to Deltec Bank’s account at Mitsubishi UFJ Trust and Banking Corporation (MUFG)…from which US authorities seized funds belonging to Deltec Bank, in June 2023.” 

A June affidavit in support of the seizure of Deltec Bank funds held at MUFG related to an investigation into wire fraud, bank fraud, and money laundering alleges that Deltec “misrepresented the purpose and use of the SUBJECT ACCOUNT.”

The account was meant to be a custodial account, however allegedly “Deltec has allowed the account to be used by other third parties, in activity that would not reasonably be anticipated in a custody account and that has allowed individuals to avoid the scrutiny and vetting that international transactions might otherwise receive.”

This affidavit does not explicitly mention FTX, Alameda Research, Bitfinex, or Tether, but does mention cryptocurrency investment scams. 

Broadly, this lawsuit alleges that Deltec Bank and Trust engaged in extraordinary behavior to aid and abet the fraudulent behavior of FTX and Alameda Research by facilitating transfers and extending credit.

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The post Executive texts claim Deltec moved customer funds from FTX to Alameda appeared first on Protos.

In her testimony last week, Caroline Ellison provided additional color on the flow of money between Alameda Research, FTX, and Tether. However, her appearance in court raised more questions than answers.

During the course of the trial, Ellison was asked how much of the $10 billion in Alameda’s bank account from FTX customers was used to send back to FTX customers in the form of stablecoins, and she disclosed that she believed it was “in the ballpark of $2 billion.”

This number is surprising because previous reporting from Protos indicated that Alameda Research had issued approximately 37 billion in tethers, and sent approximately 30 billion of those to FTX. The remainder were mostly sent to Binance and Huobi.

One explanation, of course, is that the remainder of the tethers were issued using Alameda’s cash from its many profitable trades. However, it’s not clear based on the ongoing bankruptcy or the criminal trial of Sam Bankman-Fried, that anywhere near that amount of profit was generated by Alameda Research. 

Further complicating this picture is the previously reported ‘Fiat Integration Agreement’ that one FTX group company entered into with iFinex, one of the firms that operates the Bitfinex cryptocurrency exchange. Bitfinex and Tether are sister firms with significantly overlapping shareholders, including Digfinex, and overlapping executives and directors.

Read more: Alameda Research used customer funds as early as 2019, Gary Wang testifies

Tether chief exec (then chief technology officer) Paolo Ardoino had previously explained that “Tether does not have any exposure to FTX or Alameda” on X (then Twitter). He also claimed that “no credit exposure has been matured.” In a blog post, Tether further reiterated that it “has absolutely no credit towards FTX or Alameda Research.” It’s worth noting that this sentence does include an important caveat — “at this time.”

Ellison’s comments provide a tantalizing clue but ultimately still leave a variety of questions about the relationship between FTX, Alameda Research, and Tether.

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The post What did Alameda Research do with $40B in USDT? appeared first on Protos.

At a glance

• Now in its second week, Thursday’s court session in the criminal fraud trial of Sam Bankman-Fried was mostly taken up with the cross-examination of Caroline Ellison by Bankman-Fried’s defense team.
• After being previously barred from discussing his venture capital investment in AI startup Anthropic, Bankman-Fried’s defense team appeared aimless in its questioning of Ellison.
• Defense lawyer Mark Cohen gestured at Ellison’s trading decisions and threats to her leadership of Alameda Research, but didn’t drive home any straightforward reason for the jury to disbelieve her testimony.

The cross-examination of Caroline Ellison concluded around 3pm on Thursday, October 12, after hours of questioning by Sam Bankman-Fried’s defense team. It fell surprisingly short — Bankman-Fried’s lead lawyer Mark Cohen once again lapsed into a rote repetition of points already made by the prosecution, with only a few vague lines of attack emerging.

Ellison more than kept her composure throughout the cross-examination. It was bizarre to watch unfold, because the exact opposite had seemed so likely. Ellison is a key witness for the prosecution. This week she has detailed, accompanied by evidence, exactly how Bankman-Fried directed her to commit what she describes as crimes. Undermining Ellison’s credibility was widely considered crucial to any effort to plant seeds of reasonable doubt in the jury’s minds.

But Cohen seemed to visibly flounder in attempts to undermine the credibility of Ellison’s testimony. He came nowhere close to offering an alternate theory of what really happened to all that money: you could infer a few ideas if you’re already familiar with the case, but the jury didn’t seem to have much to sink its teeth into.

Bankman-Fried’s defense team can’t hit back at Ellison

Cohen opened by asking whether Alameda revenue and profits were held in the same infamous ‘fiat@’ bank balances as FTX customer deposits. The implied argument appeared to be that ‘not all the money (spent on random impulsive venture capital investments and lost on token gambling) was stolen.’

Cohen asked Ellison about Sam Trabucco, who served as co-CEO of Alameda for a time. This might have been meant to work towards the idea that Trabucco’s strange disappearance from the Alameda offices after late 2021 left Ellison in over her head as a solo CEO. The same can be said for Cohen introducing later moments when Sam proposed adding a second co-CEO, Ben Xie, and Ellison actually stood up for herself and told Sam no. 

The strategy here is, at best, to fundamentally confuse the issue. It does seem Alameda Research wasn’t very good at trading cryptocurrency, but that’s tangential to the core issue that they were doing it with customer funds. Given the broadly financially savvy jury, this obfuscation seems unlikely to be effective.

Read more: Sam Bankman-Fried used prostitutes in bid to unfreeze funds, says Caroline Ellison

Questions about accounting staff seemed intended to advance Cohen’s case that the FTX team was “building the plane in the air” and the only crime was being sloppy. But Ellison testified that FTX actually had one accountant on staff starting in 2021, and hired two more in 2022. That’s more accounting staff than I would have assumed myself, but it’s fuzzy to me what it accomplishes for the defense.

Another line of questioning seemed to blow up in the defense’s face. “Sam gave the ultimate direction” when it came to trading decisions at Alameda Research, Ellison said. Reporting about the FTX-Alameda relationship has been entered into evidence, so jurors have a sense that exactly this sort of interlocking influence is, at best, suspicious.

Ellison remains relatable and genuine in eyes of jury

In another moment of attempted misdirection, Cohen quizzed Ellison about Alameda’s use of loans from the likes of Voyager and Genesis. Cohen had Ellison specify that this sort of loan could be used for a wide variety of investments and expenses, clearly trying to muddy the distinction between contract-based commercial loans and the off-book plundering of customer deposits.

The pattern repeated itself on topics like the FTT token, whether it was smart for Alameda to invest in the Terra stablecoin (in hindsight, it wasn’t) and whether Caroline hedged enough as head of Alameda. Written self-assessments and internal management notes called Caroline’s capabilities and job performance into question.

Cohen didn’t particularly try to get under Ellison’s skin about these negative assessments, including from Bankman-Fried. He could have pressed her for details about her worries, probed her mindstate and stress levels, actually built a picture of Caroline Ellison as particularly inept or out of control. But she just doesn’t read that way on the stand, and the prosecution has managed to depict her as a bullied underling rather than a jilted lover. 

That might be why the defense wasn’t willing to really go at Caroline Ellison hammer and tongs. She seems so credible and relatable, despite her serious lack of spine when her ethics were really on the line, that a full-throated attack on her credibility could backfire by making the jury hate them.

Defense lost chance to introduce Anthropic stake

The defense also seemed occasionally underprepared on basic points. Cohen, for instance, mispronounced the name of Ryan Salame, a high-ranking FTX executive entangled with the political donations angle of the saga (it’s SAY-lem, not Sa-LAAM).

In fairness to their efforts, the defense team had been deprived of one possible — not to say particularly strong — line of questioning before even entering court this morning. Judge Kaplan ruled yesterday that the defense couldn’t discuss the recent performance of an investment in artificial intelligence startup Anthropic.

Read more: Caroline Ellison delivers the financial smut we’ve been waiting for

Kaplan quipped that it was like robbing the Federal Reserve, but arguing you did nothing wrong because you used the money to buy Powerball tickets.

“I certainly would never let in Anthropic,” Kaplan ruled with typical bluntness. “It’s unrepresentative. It’s meaningless.”

The next court session on Friday, October 13 is expected to introduce another member of Bankman-Fried’s inner circle, former FTX director of engineering Nishad Singh, to the jury. Protos will be in the courtroom hearing his testimony — expect a thorough update as usual.

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The post Sam Bankman-Fried’s defense team failed to crack Caroline Ellison appeared first on Protos.

At a glance

• During Sam Bankman-Fried’s trial yesterday, Caroline Ellison briefly lost her composure as she described the sense of relief she felt after FTX collapsed and the truth came out.
• Ellison described efforts to use the identities of “Thai prostitutes” to create fake accounts on Chinese crypto exchanges to extract frozen Alameda Research money.
• Bankman-Fried was very calculating about his image, Ellison testified. Alameda paid for luxury cars early on, but Sam traded them in for more modest models, such as a Toyota Corolla, apparently to better align with his image of selflessness.
• The name of Bankman-Fried’s father, Joseph Bankman, could be seen in records of group chats in which executives seemed to contemplate further fraud.

Caroline Ellison’s continued testimony in the Sam Bankman-Fried case reached a dramatic peak on Wednesday, October 11. Ellison, the nominal former CEO of Alameda Research, very effectively conveyed that Bankman-Fried was in charge of all the important decisions. 

Ellison’s testimony included dozens of scandalous details about her time working for her former boyfriend. This included using the identities of what Ellison described as “Thai prostitutes” in a scheme to extract Alameda funds frozen on Chinese crypto exchanges. This effort failed, leading to the payment of large apparent bribes to Chinese officials to unfreeze the funds. Ellison described her own role in this bribery — at Bankman-Fried’s orders — in detail, though the bribery itself is part of charges that will receive a separate trial.

Ellison also detailed what the jury is likely to see as Bankman-Fried’s calculated efforts to deceive investors and the public about his character — efforts some might find even more instinctively off-putting than his financial manipulations. One significant element of Bankman-Fried’s selfless image was the idea that he was a billionaire who still drove a modest Toyota Corolla. But Ellison said that when she first arrived at Alameda, both she and Bankman-Fried had company-funded luxury cars. Later, Sam had the cars traded in for more modest models because, Ellison said, “he thought it was better for FTX’s image.”

Bankman-Fried breaks norm to watch Ellison speak

Bankman-Fried showed only subtle signs of being affected by Ellison’s testimony. For much of the trial he has been practically a statue, sitting upright at the defense table with his fingers on the keyboard of a laptop where he is ostensibly reviewing documents for his defense. But several times during Ellison’s he broke this pose, resting his chin on his hand and watching as she spoke.

Ellison seemed calm and precise for most of the testimony. This only changed briefly as she choked up while describing the days surrounding FTX and Alameda’s collapse in November 2022. Prosecutors showed records of chats in which she told Bankman-Fried she was in “the best mood I’ve been in in a year” on November 7, 2022.

Read more: Caroline Ellison delivers the financial smut we’ve been waiting for

“That was overall the worst week of my life,” she testified. “[But] one of the feelings was a sense of relief that I didn’t have to lie anymore, that I could start being honest and start taking responsibility …”

Overall, Ellison was very convincing in the role of a fairly naive person who had made serious mistakes but genuinely regretted them. Whether or not the jury feels the same could be the crux of the entire trial — the defense, in their cross examination, is likely to try and pin a lot of responsibility for FTX’s fall on Ellison.

Alameda, FTX, and Modulo Capital funds “the same,” SBF wrote

Ellison testified to receiving explicit instructions from Bankman-Fried to further various kinds of fraud, including misrepresenting the nature of Alameda Research, manipulating the market price of the FTT token, and creating fake balance sheets to deceive investors and lenders.

She told the court that Bankman-Fried effectively guided her to lie to a Bloomberg reporter for a piece about the ties between Alameda and FTX. At the time, Ellison described the relationship between the two entities as “arm’s length,” but on the stand Wednesday she said that wasn’t true at the time.

Ellison addressed an infamous Twitter reply she sent to Changpeng Zhao (CZ), CEO of Binance, offering to buy FTT tokens for $22 each as CZ sought to unload them. She described Bankman-Fried ordering her to both make that tweet, and to defend the price of FTT as faith in FTX failed. Ellison estimated Alameda spent “tens of millions [of dollars], maybe $100 million” defending FTT’s price at $22. This money, Ellison said, would otherwise have gone to fulfilling customer withdrawals.

In one particularly striking document, Bankman-Fried wrote to executives at both Alameda Research and Modulo Capital, another trading firm effectively funded by stolen FTX customer money. Tensions had arisen between Alameda and Modulo — nominally separate companies which in theory should have been competitors in the market. 

Read more: Sam Bankman-Fried used prostitutes in bid to unfreeze funds, says Caroline Ellison

But in fact, according to Bankman-Fried, everyone should be “treating all dollars the same” between the three firms. The priority for all staffers at the three firms should be “being aligned and always doing what is best for the company” (emphasis added). Though the prosecution didn’t belabor the point, the document seemed to make more explicit than ever that Bankman-Fried had engineered a shell game that relied on the illusion of separation between entities that were in fact active collaborators.

This was just one of many moments when it was clear that Sam Bankman-Fried saw no boundaries between the balance sheets of Alameda Research, FTX, or the countless smaller entities that made up his Potemkin empire. Again and again, Ellison described Bankman-Fried ordering her to create documents or send messages that misrepresented exactly what assets belonged to which entity.

Most specifically, Ellison walked the court through the preparation of a fake balance sheet to be sent to Genesis Trading in the early summer of 2022. On Bankman-Fried’s orders, she prepared a whopping seven different balance sheets, which concealed Alameda’s billions of dollars worth of related-party loans and borrowing from FTX balances in a variety of ways. Ellison and Bankman-Fried eventually chose one of these to send to Genesis, which overstated Alameda’s net value by many billions of dollars.

Joseph Bankman seen in group chat discussing FTX fraud

Another seeming revelation was not highlighted by prosecutors: evidence that seemed to even more deeply implicate Joseph Bankman, Sam’s father. Towards the end of her testimony, Ellison was guided to comment on screenshots of a group chat called “small group chat.” In that chat, on around November 8 as everything unraveled, FTX senior management explicitly discussed whether, and in what ways, to lie about how much money FTX actually had to cover withdrawals.

Attendees who looked closely could see the recipients of those messages: Sam Bankman-Fried, Caroline Ellison, Nishad Singh, Ramnik Arora, Gary Wang — and Joseph Bankman.

The next court session on Thursday, October 12 will focus on Ellison’s cross-examination by defense counsel Cohen. 

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The post Bankman-Fried’s dad spotted in damning group chat during Ellison’s testimony appeared first on Protos.

Caroline Ellison’s bombshell testimony against her former boss and former romantic partner Sam Bankman-Fried revealed that FTX and Alameda Research concocted a plan to use identities of ‘Thai prostitutes’ in a scheme to gain access to approximately $1 billion in frozen cryptocurrency on OKEx. 

Ellison alleged that Ryan Salame, former CEO of FTX Digital Markets, told her about the source of the identity documents for these accounts. 

Alameda Research was unable to withdraw from OKEx but was still able to trade, so it concocted a scheme where it would intentionally enter into losing trades with the accounts created using false identities that were under FTX control, and then utilize these accounts to withdraw the funds.

When this plan was unsuccessful, Ellison testified that they turned to bribery, eventually paying close to $100 million in crypto to Chinese officials in order to get the assets unfrozen. 

Ellison also testified that while the executives were discussing these payments, they also discussed the “Foreign Corrupt Practices Act,” and their financial documents included a notation for “negative $150 million from the thing,” where ‘the thing’ in question was apparently bribery. 

Read more: Caroline Ellison delivers the financial smut we’ve been waiting for

Bankman-Fried, the former CEO of FTX and majority owner of Alameda Research, was previously indicted for a conspiracy charge related to a bribery scheme where Bankman-Fried allegedly directed $40 million in cryptocurrency to Chinese officials. 

The discrepancy in value may come from a fall in the cryptocurrency markets, as Bitcoin fell from approximately $60,000 when the bribe was directed in November 2021 to approximately $27,000 when these charges were initially filed.

These charges were eventually removed from this trial and scheduled for March as a result of treaty obligations to the Bahamas surrounding the extradition of Bankman-Fried.

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The post Sam Bankman-Fried used prostitutes in bid to unfreeze funds, says Caroline Ellison appeared first on Protos.

At a glance

• Caroline Ellison’s highly-anticipated testimony kicked off on Tuesday, the first day of the second week of Sam Bankman-Fried’s criminal trial.
• Ellison appeared upbeat and calm, even cracking a joke here and there. Her testimony claimed that Bankman-Fried instructed her to commit fraud.
• FTX co-founder Gary Wang concluded cross-examination, which included the defense highlighting that some directives were signed by Ellison instead of Bankman-Fried.

Caroline Ellison’s testimony in the trial of Sam Bankman-Fried got into full swing today in downtown Manhattan. Perhaps the star witness of the trial, her mini-celebrity contributed to a festival atmosphere around the courthouse after a muted first week. 

YouTube fraud-buster Coffeezilla viewed the trial from an overflow room alongside Sam-whisperer Tiffany Fong. Ellison’s testimony was so highly anticipated that several young New York crypto industry professionals had also come to watch her.

Ellison’s testimony kicked off with a timeline of her employment at Alameda Research, starting in March of 2018 when she was recruited as a trader, in what she said was her second-ever full-time job. The tensions inherent in Ellison’s on-again, off-again romance with her boss, who she testified instructed her to commit naked embezzlement on a gargantuan scale, lie near the heart of the trial. Ellison also told the court that she and Sam began sleeping together in the fall of 2018, then began a romantic relationship in the summer of 2020.

In their personal life, Sam told her about his many vast ambitions. “He said at one point he thought there was a 5% chance he would become President [of the United States] one day,” she said.

Ellison’s testimony established Bankman-Fried’s control

But today’s friendly questioning of Ellison by the prosecution was focused on ensuring that the jury knew Bankman-Fried was in the loop for, or directing, all of the core maneuvers that constituted the FTX Shuffle. 

Ellison’s testimony established that Bankman-Fried was still CEO of Alameda Research when the practice of extending Alameda a huge line of credit was initiated. That line of credit and other means, Ellison also described in detail, were how Alameda borrowed, then invested or simply spent, huge amounts of FTX customer deposits.

Broadly, Ellison’s testimony drove home that letting Alameda borrow FTX customer funds at will, and for a wide variety of uses, was taken nearly for granted within FTX. It was so habitual that at one point, in documents shown to the courtroom, FTX and Alameda senior executives considered the available FTX balances as a source of liquidity in calculating whether or not to commit money to start a $3 billion dollar FTX venture capital fund.

Read more: Sam Bankman-Fried’s $500M stake in AI startup ‘irrelevant’, prosecutors say

The venture capital fund incident also further drove home that the two companies were not really functionally or financially separate. Ellison testified that she had determined that committing such huge sums to a venture capital fund, making them unavailable for customer withdrawal, presented serious risk in the event of market headwinds. 

But Bankman-Fried overrode Ellison’s judgment and established the fund anyway – likely further cementing in the jury’s mind that he was the one really in charge. Although the money was coming from Alameda’s coffers, the fund would be called FTX Ventures, because Bankman-Fried thought the FTX brand was healthier in the public eye and he didn’t want to be associated with Alameda. However complex the mechanics under the hood, this odd behavior should intuitively sound to the jury like something fishy is going on.

Ellison’s testimony came after the conclusion of Gary Wang’s cross-examination by Christian Everdell for the defense. Everdell was sharper today than he seemed for much of last week, and the aim of his lines of questioning for Wang were generally much clearer. 

This included an attempt to deflect responsibility from Bankman-Fried by displaying to Wang chats in which Bankman-Fried was critical of Ellison’s leadership of Alameda Research. Specifically, Bankman-Fried wanted Ellison to put on a specific hedge, but she didn’t. This is a likely preview of how the defense will try to characterize Ellison when she is cross-examined: as a bad leader in over her head, and a bad risk manager who lost a lot of money for Alameda.

Ellison outlines the (financial) polycule

During Ellison’s testimony, observers got to witness arcane (but occasionally juicy) financial smut. Ellison’s retelling of one of the earliest, truly huge deployments of customer deposits was particularly of note.

In the early summer of 2021, Ellison said Sam told her he wanted to buy back $2 billion in FTX equity from Binance. Ellison testified that she believed, and said at the time, that there wasn’t enough money to do that – but that Sam thought it was important. So $1 billion in customer balances were loaned to Alameda to cover the shortfall.

Ellison said it was “the first time I can recall an amount that large.”

Ellison’s testimony took a turn for the boring, as prosecutors and the witness reviewed a seemingly endless series of spreadsheets, created by the twentysomething executive team on the fly as their crisis deepened. 

These spreadsheets were drawn up between late 2021 and mid-2022 to answer a fairly critical question: whether or not to repay Alameda’s various debtors. To answer this question, the team had to answer what should have been a simple question: how much money Alameda Research had.

These were amateurish, hilarious spreadsheets, echoing the infamous spreadsheet shared by Bankman-Fried himself soon after the collapse of FTX. It seems likely that no accountants are seriously implicated in the FTX scandal, because there have been absolutely none in sight – it’s all just 27-year-olds writing numbers on virtual napkins.

Read more: Sam Bankman-Fried’s parents show signs of stress as defense flounders

There were broad estimates and frequent inconsistencies. Related documents intended to forecast risks used Effective Altruism-tinged language to calculate the “expected values” of various decisions under various scenarios. What mattered most, though, was that the documents showed Bankman-Fried himself to have been aware of the increasingly huge hole that was effectively being hidden off FTX’s balance sheet via Alameda.

The prosecution also had Ellison walk the jury through the concept of an “illiquid asset,” specifically focused on the example of the FTT token created by Bankman-Fried and FTX. Ellison’s testimony helped establish that these tokens had been essentially gifted to Alameda at their creation, that they were thinly traded, and that selling them directly into the market would have driven their price to something close to zero. This was important to establish the risk, if not fraud, inherent in using FTT as loan collateral, particularly if customers ever decided to take their money out.

This stretch of testimony was a good example of the prosecution’s knack for getting a rough concept across in its broad outlines without getting hung up on details. As one courthouse veteran sagely intoned to me today, it’s a marathon, not a sprint, and the prosecution is taking its time to imprint details into the jury’s minds, and be clear about how facts relate to one another.

Wang’s done

Though Ellison was the headliner, the day began with the conclusion of the cross-examination of FTX co-founder Gary Wang.

Wang’s testimony included one of the funniest exchanges of the day, at least for real financial fraud geeks: 

“Are you aware of the difference between solvency and liquidity?” Everdell asked Wang.

“Now I am,” replied Wang, sending a wave of laughter through the journalist-packed overflow viewing room.

Everdell also asked a series of questions about the infamous loans made to FTX executives, then funneled into various investments and expenditures. Everdell worked to establish that FTX lawyers, including Dan Friedberg, were the agents who brought the promissory notes to Wang. 

Read more: Who’s Gary Wang, the co-founder of FTX testifying against Sam Bankman-Fried?

This could serve two purposes for the jury: First, it insulated Bankman-Fried from direct personal involvement with one leg of the alleged fraudulent scheme. Second, it laid out a small portion of an “advice of counsel” defense by implying Friedberg and other lawyers gave incompetent legal guidance.

In reviewing the loan documents, Everdell also displayed one that had clearly been signed by Ellison – not, that is, by Bankman-Fried.

There wasn’t much more of note, in the grand scheme of things. Again Everdell hammered at length at details surrounding Wang’s testimony and cooperation agreement. Call me crazy, but I’m very skeptical that jurors are going to look at Wang and draw the conclusion Everdell is inviting: That this quiet Google engineer is in fact a corrupt criminal mastermind now entangled in a grand frame-up of Bankman-Fried in cahoots with the Department of Justice and the Federal Bureau of Investigation. That dog don’t hunt.

Up next: The droning horror of malformed Excel spreadsheets

The more salacious and fraught parts of Ellison’s testimony are likely to be the focus for the defense, who won’t be cross-examining her until tomorrow afternoon at the earliest. They, the trial so far has suggested, may try to focus on her real or perceived weaknesses as a trader or leader as part of an attempt to shift blame away from Bankman-Fried.

All in all, Tuesday October 10 was likely a preview of the marching doom that awaits us all for the next five weeks: interminable assaults by spreadsheet, the droning repetition of numbers attached to account names that might as well be floating through outer space as a computer server in the Caribbean. An unspooling litany of dollars and debits, chanted by affectless gnomes like the tech-priests of a howling nightmare future.

All that accumulated minutiae is, it must be said, necessary to really drill the testified facts into the juror’s heads. It’s complicated stuff, and the prosecution is being methodical. It’s a double-edged sword, though: No fewer than two jurors have been seen falling asleep in court, one for long, repetitive stretches. She’s hidden from the viewing area behind a monitor, and for whatever reason it seems the judge hasn’t really noticed her dreamland excursions yet either.

Today, ever so briefly, I too began to feel the weight of my eyelids. We were somewhere around the fourth spreadsheet containing entries that might as well have been algebra conducted in heiroglyphics. Just for a moment, before my journalistic integrity kicked back in, in the comfortable leatherette armchair paid for by my very own US tax dollars, I let my eyes drift shut.

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The post Caroline Ellison delivers the financial smut we’ve been waiting for appeared first on Protos.