Carolyn Ellison is scheduled to testify as a star witness against Bankman-Fried

Her testimony follows testimony from two other Bankman-Fried confidants and top aides who told jurors last week that the executive orchestrated a massive fraud on customers of FTX, his cryptocurrency trading platform. Adam Yedediah, a college friend of Bankman-Fried who joined FTX as a software developer, said he resigned after learning of the behavior as the company collapsed. Gary Wang, who also pleaded guilty to financial crimes as FTX’s chief technology officer, testified that Bankman-Fried stole $8 billion from customers and lied publicly about it.

Ellison pleaded guilty in December to seven charges, including wire fraud and securities fraud, and agreed to cooperate with prosecutors in anticipation of a reduced sentence. She said she participated in the central scheme of prosecutors’ case, defrauding FTX clients by using their money to pay off debts of his hedge fund, Alameda Research.

“I’m truly sorry for what I did,” Ellison said during her appearance in Manhattan federal court last December to plead guilty. “I knew it was wrong.”

Bankman-Fried faces sweeping allegations that he plundered billions of dollars of FTX clients’ funds without their knowledge to make risky investments, purchase luxury real estate, issue massive loans to his inner circle and donate tens of millions of dollars to politicians in both parties.

If convicted, he could spend decades in prison. He pleaded not guilty.

Prosecutors say Ellison was instrumental in Bankman-Fried’s alleged crimes. Nathan Wren, the assistant U.S. attorney who delivered the government’s opening statement last week, said Bankman-Fried set her up as a “front” atop Alameda while he continued to make decisions behind the scenes.

Defense lawyers gave a different version of events. They hold Ellison partly responsible for the collapse of cryptocurrency companies by failing to heed a warning from Bankman Fried to position Alameda for a potential downturn in cryptocurrency asset prices.

As a witness, the Stanford-educated mathematician offers a remarkable mix of personal and professional insight into Bankman-Fried’s behavior, said former federal prosecutor Adam Kamenstein.

“It will prove that Sam not only did not know in practice what was going on, but he was lying about it,” Kammenstein said. “The game will be over.”

Bankman-Fried and Ellison first met when they were working at Jane Street Capital, a private investment firm in New York City. Bankman-Fried resigned in 2017 to found Alameda, and hired Ellison to join him the following year. He promoted her to co-CEO of the company in 2021, and subsequently to sole CEO, while continuing to own a majority of the fund.

But Ellison had deep doubts about her abilities as a leader, an anxiety that was exacerbated by her on-off romance with Bankman-Fried, according to Bankman-Fried’s later private writings. It leaked For the New York Times. This leak led Judge Louis A. Kaplan canceled Bankman-Fried’s bail, which had allowed him to live under house arrest at his parents’ home in Palo Alto, California. He has since been imprisoned in a Brooklyn prison.

Ellison said in her guilty plea that she knew since 2019 that Alameda had “backdoor” access to FTX clients’ funds, giving the company “effectively an unlimited line of credit without having to put up collateral.”

It also discussed Alameda’s numerous large and risky bets on venture deals and personal loans to FTX executives, saying they were financed with loans from outside lenders “worth several billion dollars.” When those creditors called in their money, Bankman Fried and his team used FTX clients’ money to repay them, she said.

Ellison said she worked with Bankman-Fried and others to lie to Alameda lenders about her safety, including by manipulating certain financial statements. At the direction of Bankman-Fried, it secretly inflated the market price of FTT — a cryptocurrency issued by FTX and used by Alameda to shore up its balance sheet — to improve the appearance of the company’s financial health to those lenders, prosecutors say.

Throughout her time there, Ellison kept detailed records of the state of the business and the efforts of Bankman-Fried and his closest management advisors as the enterprise began to decline amid a broader industry downturn in 2022.

“She took notes at meetings with her co-conspirators in which they discussed, among other matters, the financial health of Alameda and its obligations to FTX,” prosecutors wrote in an August court filing outlining evidence they plan to use at trial. Its records included a list titled “Things Sam Is Afraid Of,” which identified Alameda trading positions, bad press about entanglements between FTX and Alameda, and fundraising, according to the filing.

Ellison is also likely to offer a window into the stunning collapse of the business in early November last year. As FTX faced a solvency crisis, with a series of clients trying to withdraw their deposits and rival Binance exploring a short-term bid for the company, Ellison gathered Alameda employees to offer a tearful explanation, according to a recording of the meeting obtained by prosecutors.

The Alameda company “ended up borrowing a bunch of money from FTX” to repay its creditors, she said. “I think, mostly I want to say, ‘I’m sorry. This really sucks.’

When asked by an employee who made the call to receive FTX clients’ money, she said, “Um…Sam, I think.”