Caroline Ellison desired to step down but feared a bank run on FTX

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Ellison spent over ten hours testifying during Bankman-Fried’s trial this week, notably entering through the front doors of the federal court in Manhattan, joined by her attorneys. According to Ellison, she had not seen Bankman-Fried since the crypto empire failed in November last year. But their communication eroded even months before.

In April 2022, their romantic relationship came to an end, and Caroline started avoiding meetings with Bankman-Fried, even though they still lived in the same luxurious apartment in the Bahamas. Alameda’s growing liabilities with FTX and the breakup made her consider leaving Alameda.

“I feel link neither Trabucco nor I have been doing a great job of pushing on stuff,” she wrote in the document to Bankman-Fried, shared as evidence during her cross-examination by his defense counsel.

Bankman-Fried asked her to stay, saying that her departure could create rumors about Alameda’s financial health, thus harming FTX credibility. Ellison remained as CEO.

Ellison joined Alameda as a trader in 2018. By 2020, she was handling most of the company’s operations, while Bankman-Fried was focused on his newly launched crypto exchange FTX. In August 2021, she became co-CEO alongside Sam Trabucco, who stepped down a few months later, leaving her in charge of the company. In August 2022, Trabucco officially resigned as co-CEO.

Ellison was against creating FTX, she revealed. “I didn’t think of myself as ambitious before I started at Alameda, but I believe I became more ambitious” under Bankman-Fried’s incentive, she said.

As CEO, Elisson was in charge of handling Alameda’s crypto lenders. In mid-2022, after the Terra ecosystem failed, the company’s open-term loans stood at $1.3 billion. The market downturn drained liquidity from crypto assets, leading Alameda’s lenders to demand repayment on loans.

According to Ellison, Bankman-Fried instructed her to keep repaying creditors via Alameda’s line of credit with FTX. In other words, Alameda would use FTX’s customers’ assets to repay crypto lenders. At the time, its line of credit with the exchange stood at $13 billion.

As lenders demanded repayment of loans and Alameda’s balance sheets, Bankman-Fried suggested Ellison use “alternative means” for presenting the company’s financials. In the following months, Ellison would create many additional versions of a balance sheet to deceive creditors.

Early in November, an alternative version of Alameda’s balance sheet was leaked. At the time, Ellison was on vacation in Japan, but she had to travel to FTX Hong Kong’s office to deal with the company’s crisis.

While the balance sheet data didn’t reflect the company’s reality, it was enough to spread rumors and trigger a bank run on FTX a few days later, exposing an $8 billion gap between the companies.

Cooperating with the Department of Justice since December, Ellison will soon receive her sentence regarding the seven counts of fraud and conspiracy to commit fraud she was charged with.

Caroline Ellison wasn’t doing a good job leading Alameda Research in 2022, and she did not hide it. Pieces of her personal notes shared as evidence by prosecutors on Sam Bankman-Fried’s trial revealed details about the trading firm’s struggles and its CEO’s desire to resign weeks and months before the collapse of FTX. 

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