Scandal Unveiled: Explosive Secrets, Star Witness, and a Shocking Twist in Sam Bankman-Fried's Defense

Halfway through a potentially month-long trial, jurors are facing a deluge of incriminating evidence against disgraced crypto tycoon Sam Bankman-Fried. The defense, although yet to present their own witnesses, has struggled to effectively challenge the government's testimonies, which have implicated Bankman-Fried in a complex scheme spanning several years, involving customer theft, investor fraud, and extensive efforts to conceal the illicit activities.

Bankman-Fried, aged 31, has denied all allegations of fraud and conspiracy, facing a total of seven charges. The accusations suggest that he illicitly obtained billions of dollars from customers' deposits on his FTX cryptocurrency exchange, with the intention of compensating for losses incurred at his other company, the crypto trading firm known as Alameda Research. During the second week of the trial, the prosecution presented significant evidence to support their case. Here are the noteworthy moments.

The ultimate insider

Caroline Ellison offered crucial testimony this week against her former boss and ex-boyfriend, Sam Bankman-Fried.

Jane Rosenberg/Reuters

Caroline Ellison, a 28-year-old who was the CEO of Alameda during its collapse and had an on-and-off relationship with Bankman-Fried for two years, is undoubtedly the most crucial witness for the prosecution.

"In cases like this, having a narrator who can effectively present the story to the jury is crucial," commented Jordan Estes, a former federal prosecutor from the US Attorneys Office, now partner at Kramer Levin. "And when it comes to criminal schemes, the best narrator is usually the person closest to the defendant... and in this case, that person is Caroline Ellison, the ultimate insider."

Her testimony held significance for several reasons. Being a trusted advisor and also romantically involved with SBFs, Ellison possesses a unique perspective on the happenings within the intimate Alameda and FTX executive circle. It is worth noting that a number of these executives resided together in a lavish $30 million apartment located in the Bahamas.

She guided the jurors through the financial documents she had created, describing them as deceitful and intended to conceal Alameda's unstable financial position. As an example, she prepared seven different balance sheets to provide to a lender who had requested financial disclosures.

Her testimony to the jury occasionally carried emotional undertones, and tears welled up in her eyes as she recalled the constant fear and anxiety she experienced from lying to investors, the general public, and even her own employees.

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She confirmed the statement made by another FTX executive, Gary Wang, who had previously testified that Alameda had access to a concealed and almost boundless credit line to use FTX customer funds (this was all happening without customers' awareness or consent, contradicting Bankman-Fried's public claims that FTX never accessed customer deposits).

Ellison depicted Bankman-Fried's deliberate choice of having a disheveled trademark appearance, which includes untidy hair and a wardrobe consisting of cargo shorts and T-shirts. This was seen as a calculated public relations strategy to present himself as an unconventional entrepreneur.

In summary, Ellison's testimony depicted a scenario where Bankman-Fried held significant authority and responsibility in both Alameda and FTX. She consistently indicated that he was the primary influencer behind decision-making, whether legal or illegal, using variations of the phrase "Sam did" when questioned about her actions. It is important to note that Ellison has admitted guilt and has been assisting prosecutors for almost a year, hoping for a reduced sentence. Similar to Bankman-Fried, Ellison could potentially face up to 110 years in prison if sentenced to the maximum.

The secret audio recording

During a lengthy cross-examination that lasted approximately six hours on Thursday, Bankman-Frieds defense team engaged in a meandering and halting exchange with Ellison. The back-and-forth between the two sides repeatedly resulted in objections from the prosecution. At certain points, Judge Lewis Kaplan expressed his exasperation and interrupted to seek clarification from lead defense counsel Mark Cohen regarding his intentions.

Caroline Ellison, former chief executive of Alameda Research, leaves federal court in Manhattan on Thursday.

Jurors later listened to Christian Drappi, a former software developer at Alameda, as he recalled an all-hands meeting at the company's Hong Kong office on November 9, just two days before the entire business collapsed.

Ellison unknowingly chaired the meeting, while a newly hired trader at Alameda secretly recorded it. When addressing an employee's inquiry, Ellison casually refers to the choice of using customer funds to repay loans as "Sams, I suppose." The significance of the recording lies in its timing.

The statements made by Ellison in the recording are referred to as "prior consistent statements of a witness," according to Estes. These statements are highly impactful as they demonstrate consistency with the witness's testimony prior to any involvement with law enforcement.

Essentially, Bankman-Fried's defense would struggle to argue that Ellison had been coerced by prosecutors or provided with a false narrative, as the tape contains her admission of wrongdoing and confirmation that Bankman-Fried made the call prior to any arrests being made.

Chinese bribes and Thai prostitutes

While Bankman-Fried is not facing bribery charges in this trial, Ellison was permitted to testify regarding an incident where she alleges that he instructed Alameda to transfer approximately $100 million to two crypto wallets in China. She suspected that these funds were intended as a bribe to persuade Chinese officials to unfreeze Alameda's two crypto trading accounts, valued at around $1 billion, that were being held in China.

Caroline Ellison, the former CEO of Alameda Research LLC, appeared in court in New York, USA on Wednesday, October 11, 2023. During the fraud trial of FTX co-founder Sam Bankman-Fried, jurors heard from Ellison, his ex-girlfriend, who explained how he allegedly orchestrated the use of customer funds amounting to billions of dollars to support high-risk investments, ultimately resulting in the collapse of the cryptocurrency exchange.

Yuki Iwamura/Bloomberg/Getty Images

Star witness in Sam Bankman-Fried trial offers insider account of alleged criminal enterprise

Whats next?

: In a desperate attempt to move the funds out of China, she referred to the payments as a last resort. She disclosed that one of the unsuccessful strategies involved utilizing accounts owned by "Thai prostitutes" to establish transactions that would deplete Alameda's China accounts and transfer the value to the sex workers' accounts, with the intention of later reclaiming them.

The main concern currently is whether Bankman-Fried will take the stand in his defense. Estes stated that if the prosecution's evidence has been compelling, it would be a risky move that could completely alter the course of the trial.

Deciding whether or not to testify depends on the specifics of the case and there are potential risks regardless of the choice. However, if you have not had the opportunity to share your perspective through cross-examination, it might be one of the few ways to do so.

The prosecution originally anticipated concluding their presentation of evidence by October 25, although there is a likelihood that they will shorten their list of witnesses and finish earlier.

Estes explained to CNN a commonly used government strategy called "thin to win." According to him, once most of the evidence and necessary exhibits related to the fraud have been submitted, adding more could pose a risk.