Two weeks into what could be a four-to-six-week trial, jurors hearing the case against fallen crypto mogul Sam Bankman-Fried have been inundated with evidence that looks, for now, pretty damning.
While the defense has yet to call its own witnesses, it has stumbled frequently in cross-examining the government’s, several of whose testimony placed Bankman-Fried at the center of a yearslong conspiracy to steal from customers, defraud investors and bend over backwards to cover it all up.
Bankman-Fried, 31, has pleaded not guilty to seven counts of fraud and conspiracy. He’s been accused of stealing billions of dollars in deposits from customers of his FTX crypto exchange in order to cover losses at his other firm, a crypto trading house called Alameda Research.
The prosecutors brought out their big guns in week two of the trial. Here are the highlights.
By the far the most significant witness for the prosecution is a 28-year-old named Caroline Ellison, who was the CEO of Alameda at the time it collapsed and also dated Bankman-Fried on and off for two years.
“In a case like this, you really need a narrator — somebody who can tell the story in a way that the jury can understand,” said Jordan Estes, a former federal prosecutor with the US Attorney’s Office who is now a partner at Kramer Levin. “And the best narrator, in any sort of criminal scheme is the person closest to the defendant … She was the ultimate insider.”
Her testimony, which stretched over three days, was important for a few reasons.
- As both a close adviser and romantic partner of SBF’s, Ellison is uniquely positioned to comment on what was happening within the tight inner circle of Alameda and FTX executives, many of whom lived together in a $30 million luxury apartment in the Bahamas.
- She walked jurors through financial documents that she prepared, stating that they were “dishonest” and designed to mask the unsteady financial footing that Alameda was on. In one instance, she prepared seven “alternative” balance sheets to present to a lender that had been asking for financial disclosures.
- Her statements to the jury were at times tinged with emotion, and she fought back tears as she recounted her “constant state of dread” and stress about lying to investors, the public and even her own employees.
- She corroborated testimony from another FTX executive, Gary Wang, who testified earlier that Alameda had a secret and virtually unlimited line of credit to tap FTX customer funds (all of which, of course, was happening without customers’ knowledge or permission, and flies in the face of Bankman-Fried’s public assertions that FTX never touched customer deposits.)
- Ellison described Bankman-Fried’s trademark disheveled appearance — including his unkempt hair and wardrobe of cargo shorts and T-shirts — as a calculated PR move to portray himself as an eccentric entrepreneur.
Bottom line: Her testimony offered a narrative of events in which virtually every decision at both Alameda and FTX came down to Bankman-Fried, who founded and was the majority owner of both firms. A common refrain from Ellison, when asked who directed her to carry out various actions, criminal or otherwise, was a variation on the words “Sam did.”
To be clear, Ellison has pleaded guilty and has been cooperating with prosecutors for nearly a year in the hopes of securing a lighter sentence for herself. Like Bankman-Fried, Ellison faces the prospect of 110 years in prison if given a maximum sentence.
Bankman-Fried’s defense team cross-examined Ellison for about six hours on Thursday in a meandering, halting back-and-forth that repeatedly prompted objections from the prosecution. At times, Judge Lewis Kaplan sounded exasperated and interrupted to ask lead defense counsel Mark Cohen to clarify what he meant.
Jurors later heard from a former software developer at Alameda named Christian Drappi, who recounted an all-hands meeting at the firm’s Hong Kong office on November 9, two days before the entire business folded.
Ellison led the meeting, which, unbeknownst to her, was being recorded by a trader who joined Alameda just three days earlier. In responding to an employee’s question, Ellison says the decision to repay loans with customer funds was “Sam’s, I guess.”
The recording is particularly important because of the timing.
Statements like the ones Ellison made in the recording are known as “prior consistent statements of a witness,” Estes said. “They’re very effective, because they show statements that are consistent with the witness’s testimony before they’ve ever been approached by law enforcement.”
In other words, Bankman-Fried’s defense would have a hard time arguing that Ellison had been coerced by prosecutors or fed a false narrative, because the tape has her both admitting wrongdoing and stating that Bankman-Fried made the call before anyone was arrested.
Chinese bribes and ‘Thai prostitutes’
Although Bankman-Fried doesn’t face bribery charges in this trial, Ellison was allowed to testify about an instance when she believes he ordered Alameda to wire “in the ballpark of $100 million” to two crypto wallets in China. She said she believed the funds were a bribe to get Chinese officials to unfreeze two crypto trading accounts worth about $1 billion that Alameda held in China.
She described the payments as a last resort after other tactics to move the funds out of China failed. One of those failed schemes, she said, involved using accounts belonging to “Thai prostitutes” to set up trades that would drain Alameda’s China accounts and transfer value to the sex workers’ accounts, where Alameda could reclaim them.
The biggest question now is whether Bankman-Fried will testify in his own defense.
In a case where the prosecution’s evidence has been strong, said Estes, that’s a Hail Mary that can “absolutely change the dynamic of a trial.”
Whether or not to testify is case-dependent, and there are risks either way. But “if you have not gotten out your side of the story through cross examination, then that may be one of your only avenues to do it.”
Prosecutors had expected to finish presenting their case around October 25, though there’s at least a decent chance they cull their list of witnesses and wrap sooner.
“There’s a common government strategy called ‘thin to win,’” Estes told CNN. “If you’ve got out most of the evidence of the fraud and the exhibits you need, then there’s sort of only danger in adding more.”