Alameda’s paper trail leads straight to Sam Bankman-Fried

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By Aprilia Reen

And his “very valuable” hair, too.

Photo Illustration of Caroline Ellison in front of a graphic background a tangled wired and pixels.

a:hover]:text-gray-63 [&>a:hover]:shadow-underline-black dark:[&>a:hover]:text-gray-bd dark:[&>a:hover]:shadow-underline-gray [&>a]:shadow-underline-gray-63 dark:[&>a]:text-gray-bd dark:[&>a]:shadow-underline-gray”>Photo Illustration by Cath Virginia / The Verge | Photo by Michael M. Santiago, PM Images, Getty Images

Sam Bankman-Fried wasn’t just a crypto wunderkind, he was an ambassador for improving the world through effective altruism. And if you were wondering how he squared those values with all the lying he allegedly did during his time at FTX, wonder no more: the answer is utilitarianism. 

Lying and stealing were permitted, as “the only moral rule that mattered would be maximal utility,” Caroline Ellison testified on her second day at Bankman-Fried’s fraud trial. I glanced over at his parents, Joseph Bankman and Barbara Fried, to see what they made of this; both appeared to be busy scribbling into legal pads. In any case, the approach apparently worked for much of Bankman-Fried’s life — right up to demanding doctored balance sheets for the company Ellison supposedly ran. 

Bankman-Fried’s cavalier attitude toward lying rubbed off on her, Ellison testified. Ellison choked up a little as she went on: “When I started working at Alameda, I don’t think I would have believed you if you told me I would be sending false balance sheets to our lenders, or taking customer money, but over time, it was something I became more comfortable with.” Later, testifying about the days when the crypto hedge fund Alameda Research and exchange FTX fell, she cried.

Ellison’s second day of testimony delved into the collapse of Bankman-Fried’s empire. Though she answered her questions with the attitude of a student trying to get an A in a difficult class, during court sidebars — where the lawyers bickered with each other in front of the judge and out of earshot of the rest of us — she slumped into herself, looking forlorn. She wore a gray blazer over a white v-neck blouse with black dots tucked into a black skirt, and she still didn’t quite summon up the appearance of an executive. That made sense. The text messages we saw suggested she made few consequential moves without first consulting Bankman-Fried — not exactly a real CEO.

The day picked up with Ellison discussing May 2022, when crypto markets entered freefall as the Terra/Luna coins collapsed. Amid the chaos, lenders started demanding their funds back. We saw Telegram chats with employees at Genesis, a crypto lender, which was asking Alameda to return its money. There was a tick-tock of Alameda getting its loans called by lenders across the board. In June, Bankman-Fried directed Ellison to repay the loans using FTX customer funds, she said.

Ellison knew this likely wasn’t possible. FTX customer funds had been used to pay off those loans, she testified. If a large number of FTX customers withdrew all at once, the exchange wouldn’t have the money. “I was really stressed out,” Ellison said. “I was in sort of a constant state of dread at that point.” 

Bankman-Fried’s defense lawyers seem to be teeing up the notion that the customer funds were still there, just in an investment portfolio. The problem is that putting those funds in an investment portfolio is still stealing the funds. Crypto exchanges aren’t banks; they don’t lend out customer money. At least, the honest ones don’t.

During opening statements, the defense suggested that the failures at Alameda were Ellison’s fault — and that Bankman-Fried acted appropriately given what he knew at the time. In order to prove fraud occurred, the prosecution must show that Bankman-Fried knowingly lied. And Bankman-Fried was cagey about what he put in print. He had the company set their Slack and Signal messages to disappear, resulting in a lot of blank Signal chats in previous court exhibits, and again today. 

Ellison said he told her not to put anything in writing that she wouldn’t want to see on the front page of The New York Times. She violated that rule with a set of memos about their relationship. Later, Bankman-Fried would literally leak them to that paper. 

Still, it’s impossible to run a business without documents. So today we saw a lot of documents that back Ellison’s claims that she worked at Bankman-Fried’s direction, even if we didn’t actually see his directions.

Part of Ellison’s job was pulling together balance sheets — by definition, writing something down. Alameda’s original balance sheets included a row called “FTX borrows,” which she said marked the customer funds. She says she wanted to identify it — but didn’t feel she could do so directly. That original balance sheet did contain $4.59 billion in related-party loans to Bankman-Fried, Gary Wang, Nishad Singh, and others. This is where the justified lying came in. 

In an attempt to “conceal the things on our balance sheet we thought looked bad,” Ellison says she made seven fake balance sheets to run by Bankman-Fried. The one we saw was dated June 19th, 2022. The “FTX borrows” and related party loans had vanished. Some of the money that Alameda had borrowed from FTX was put in long-term loans — a second lie on top of the first, since customers could withdraw at any time.

The balance sheet Bankman-Fried chose made Alameda look less risky than it really was and hid the FTX funds, Ellison testified. She sent the balance sheet to a contact at Genesis, the crypto lender, the next day. That person replied that he’d “just caught up with Sam btw” and suggested that they stay “in tight contact this week.” She was asked to repay $500 million in loans because Genesis was “basically in the position where this is no longer a luxury.”

Ellison offered some other examples of Bankman-Fried’s apparently casual attitude toward lying. For instance, when Alameda funds got stuck on two Chinese exchanges, Huobi and OKX, Bankman-Fried first tried using a lawyer to negotiate. When that failed, Alameda tried opening accounts using the IDs of “Thai prostitutes” in order to create transactions that would get the funds back. We didn’t get a lot of detail about that except that it didn’t work, and I nearly expired from curiosity right there in the courtroom.

Finally, Bankman-Fried directed the company to pay a bribe, over the objections of a Chinese employee, who Ellison says he told to “shut the fuck up.” Later, Bankman-Fried and another Alameda executive would mock that employee on Signal. 

Ellison also testified that Bankman-Fried’s famously slovenly personal appearance was an act of careful public relations. He wanted to project the image of a smart, competent, and somewhat eccentric founder. He found Twitter particularly valuable for controlling the narrative, she said. Bankman-Fried also made investments in Semafor and The Block, and considered investments in Vox and Forbes, she testified. (Ellison didn’t testify to this, but Bankman-Fried’s philanthropic foundation, Building a Stronger Future, awarded our sister website Vox a grant for a reporting project.)

“He said he believed in a very proactive approach to public relations,” she said. He also thought his famously wild hair was “very valuable” and had led to higher bonuses at Jane Street, she testified. In the courtroom, Bankman-Fried visibly shook while she said this. Though Ellison and Bankman-Fried initially had “luxury cars,” Bankman-Fried felt it would be better for his image to drive a Toyota Corolla, so he switched cars. 

At least he did really sleep on a bean bag in the office, according to Ellison. This had been thrown into question by Bankman-Fried’s college roommate in earlier testimony.

Because PR was so important to Bankman-Fried, when Bloomberg was preparing a critical — and, it seems, prescient — article about the ties between Alameda and FTX, Bankman-Fried considered shutting Alameda down. Both Bankman-Fried and Ellison lied to the reporter to make the two companies sound more separate than they were. Also, to increase the appearance of separation, a venture fund was renamed to remove “Alameda,” even though that’s where the money was coming from.

In hand-written notes, Ellison outlined the problems with shuttering Alameda. Among them? Alameda’s job was “market making for shitty things” — which was how Ellison referred to creating liquidity for thinly-traded assets. Plus, Alameda was a backup liquidity provider for FTX.

Ultimately, they did nothing.

But Bankman-Fried was right to worry about reporters. On November 2nd, 2022, CoinDesk published an article presumably based on a version of Ellison’s doctored balance sheet. (I expect that if the reporter had seen insider loans, that might have been somewhere near the lede.) That kicked off a flurry of communication between Bankman-Fried and Ellison, which we saw because Ellison started preserving her messages. “I was terrified,” she said. “It was finally happening.”

Bankman-Fried thought the move was to make bold tweets, but he didn’t want to do it. Instead, Ellison did — writing in her own words a workshopped version of a tweet Bankman-Fried originally wrote, which began, “Heh, I see *someone* is really trying to FUD us.”

Of course, then Changpeng “CZ” Zhao jumped into the mix, saying he wanted to liquidate his remaining FTX token, FTT. After a discussion on Signal with Bankman-Fried, Ellison responded on November 6th that she would buy FTT at $22. An eventful few days ensued, which ended in Alameda’s and FTX’s bankruptcy.

We saw a remarkable text from Ellison as the collapse was happening. “This is the best mood I’ve been in a year tbh,” Ellison messaged Bankman-Fried. It’s not clear what date the screenshot came from, though Bankman-Fried was the source. Ellison cried looking at the messages. “To be clear,” she said, “that was overall the worst week of my life. I had a lot of mood swings that week, and a lot of different feelings.”

One of those feelings was relief. The truth coming out was “something that had been in my mind every day,” she said. The thing she’d been dreading had happened and “I didn’t have to lie any more.” She said she felt “indescribably bad” about all the people “who trusted us that we had betrayed.” A court clerk passed her a tissue.

Bankman-Fried was right. The things you put in writing can come back to bite you. Your awful ex-boyfriend might leak your diaries to The New York Times. In those notes — memos, really — Ellison discussed her concerns about her personal relationship with Bankman-Fried affecting their professional relationship. She felt like an unequal partner in their relationship. Today’s evidence suggested that was certainly true in their professional life. 

It also suggested something else: the things you put in writing can, potentially, save you. It’s a lot harder to paint Ellison as the sole decision-maker when she’s got contemporaneous evidence that she didn’t make a move without running it by Bankman-Fried.

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