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Caroline Ellison describes “constant dread” over crypto downturn at Bankman-Fried trial

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NEW YORK :Caroline Ellison, the former co-head of Sam Bankman-Fried’s hedge fund, testified at his fraud trial on Wednesday that she was in a “constant state of dread” as the firm’s lenders demanded repayment amid a downturn in cryptocurrency markets in 2022.

Ellison, the former co-chief executive of Alameda Research, said that Bankman-Fried instructed her to draw from the fund’s line of credit on the FTX cryptocurrency exchange to repay loans in June 2022.

As cryptocurrency prices plummeted and the value of Alameda’s assets dropped, Ellison said she was “very stressed out” knowing the funds used to repay loans were ultimately coming from FTX customers.

“I was in sort of a constant state of dread at that point,” she said, adding, “every day I was worrying about the possibility of customer withdrawals at FTX.”

Prosecutors say Bankman-Fried plundered billions in customer funds to prop up Alameda, buy real estate and donate more than $100 million to U.S. political campaigns before FTX declared bankruptcy in November 2022 following a collapse that shocked financial markets and left his reputation in tatters.

Ellison testified on Tuesday the hedge fund took about $10 billion in FTX customer funds overall to repay its debts and make investments.

She is one of three former members of Bankman-Fried’s inner circle who have pleaded guilty to fraud charges and agreed to cooperate with the Manhattan U.S. Attorney’s office.

The 28-year-old Stanford University graduate told jurors Bankman-Fried, her former boss and sometime romantic partner, shrugged off the risk of Alameda’s lending and investment strategies, which relied on loans from crypto lenders who could demand repayment at any time.

“He described himself as truly risk-neutral,” whereas most people saw themselves as risk-averse, she said.

Bankman-Fried has pleaded not guilty to two counts of fraud and five counts of conspiracy, and has argued that while he made mistakes running FTX, he never intended to steal funds.

In his opening statement last week, defense lawyer Mark Cohen told jurors to question whether cooperating witnesses like Ellison were putting a new, nefarious spin on old decisions by Bankman-Fried which they had originally agreed with.

Gary Wang, FTX’s former technology chief, testified that Bankman-Fried falsely tweeted that FTX was “fine” in November as the exchange faced surging demand for withdrawals. A third cooperating witness, former FTX engineering chief Nishad Singh, is also expected to testify at the trial, which could last up to six weeks.

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