Caroline Ellison, a top adviser to the cryptocurrency mogul Sam Bankman-Fried, testified on Wednesday that she had lied over and over at his request, misleading the public about his businesses and circulating “dishonest” financial documents to crypto lenders.
By the time Mr. Bankman-Fried’s two companies — FTX, a digital currency exchange, and Alameda Research, a hedge fund — collapsed in November, the lies had become too much to bear, Ms. Ellison said, and the implosions were almost cathartic.
“Overall it was the worst week of my life,” said Ms. Ellison, 28, fighting back tears as she recounted the frantic week when the companies failed. “I felt this sense of relief that I didn’t have to lie anymore, and that I could start taking responsibility even though I felt indescribably bad.”
Ms. Ellison’s testimony, in her second day on the witness stand, was the most emotional moment so far of Mr. Bankman-Fried’s fraud trial. She was widely considered the government’s star witness, partly because she dated Mr. Bankman-Fried on and off for years, giving her unique access to the FTX founder as his crypto empire grew. His trial in federal court in Manhattan has become a referendum on high-risk practices across the crypto industry that led to billions of dollars in losses last year.
In the courtroom, Mr. Bankman-Fried, 31, did not visibly react to Ms. Ellison’s testimony. During a break in proceedings, he glanced at a group of reporters sitting in the gallery and raised his eyebrows.
Mr. Bankman-Fried has been charged with orchestrating a scheme to turn FTX into his personal piggy bank. The authorities contend that he stole as much as $10 billion from FTX customers to finance venture capital investments, buy luxury real estate, make campaign donations and pay off lenders to Alameda.
Ms. Ellison, who was Alameda’s chief executive, has said she served as one of Mr. Bankman-Fried’s main accomplices by channeling FTX customer funds into Alameda’s coffers. In December, she pleaded guilty to fraud and conspiracy and agreed to cooperate with prosecutors in return for leniency. Gary Wang and Nishad Singh, two top FTX executives, also pleaded guilty and are cooperating with the government.
Mr. Bankman-Fried has pleaded not guilty to seven criminal counts, including a charge of defrauding lenders. He could face what would amount to a life sentence in prison if he is convicted.
Since FTX collapsed, Ms. Ellison has faced far greater public scrutiny than either of the other cooperating witnesses. She and Mr. Bankman-Fried lived together in the Bahamas, where FTX was based, and shared a turbulent office romance as FTX grew into a $32 billion crypto behemoth. On Tuesday, Ms. Ellison recounted intimate details of the relationship, including the tensions it caused at work and her own anxieties about Mr. Bankman-Fried’s feelings toward her.
When she returned to the stand on Wednesday, Ms. Ellison walked through the history of FTX’s financial problems. She told jurors that the exchange began falling apart in spring 2022 when the crypto market crashed.
Ms. Ellison said she had kept detailed spreadsheets that showed just how much Alameda owed its lenders and how much it was relying on customer deposits from FTX to pay down those loans in the worst-case scenario. She said she had shared her analysis with Mr. Bankman-Fried.
The worst case happened in June 2022 when Alameda’s lenders began asking for money back. Alameda’s own crypto assets had plunged in value during the market downturn, meaning the firm had little way to make its lenders whole.
“I was in sort of a constant state of dread at that point,” Ms. Ellison testified. At times, her testimony turned emotional, and a court official handed her a tissue as she tried to stifle sobs. She said she had been concerned that if the public found out that Alameda had been taking FTX customer funds, “everything would come crashing down.”
Even after she laid out the risks, she said, Mr. Bankman-Fried directed her to use more customer deposits to repay the lenders. Ms. Ellison said she had followed his instructions even though “I knew it was wrong.”
To hide Alameda’s fragile financial state, Ms. Ellison said, Mr. Bankman-Fried told her to give one of the firm’s biggest lenders — a crypto company called Genesis — a misleading balance sheet in summer 2022 that concealed that Alameda had borrowed some $10 billion in FTX customer money.
“I didn’t want to be dishonest, but I also didn’t want them to know the truth,” she said. She testified that she had sent similar “dishonest” balance sheets to other lenders before FTX’s collapse.
She broke up with Mr. Bankman-Fried in the middle of 2022, and their work relationship also frayed. During a heated conversation with him in August 2022, she broke down and cried when he blamed her for Alameda’s financial troubles, she testified. He accused her of not taking enough measures earlier in the year to reduce Alameda’s trading risks in the crypto market.
“He was speaking loudly and strongly,” she said. “I got very upset, started crying, and I had trouble continuing the conversation.”
Ms. Ellison also testified about large payments that Alameda made in 2021 to unfreeze $1 billion it had kept in trading accounts at two Chinese exchanges. In March, prosecutors charged Mr. Bankman-Fried with paying tens of millions in bribes to the Chinese government to regain access to those accounts.
Prosecutors later decided to pursue the foreign bribery charge at a separate trial scheduled for next year. But the judge overseeing the case, Lewis. A. Kaplan, allowed Ms. Ellison to discuss some of FTX’s efforts to unfreeze the money, while reminding the jury that Mr. Bankman-Fried is not facing a bribery charge at this trial.
Ms. Ellison said one failed attempt to unfreeze the money had involved trading accounts set up in the names of “Thai prostitutes.” After Alameda’s money was unfrozen, she said, she was careful about how she described the payments on internal documents.
“I didn’t want to put in writing that we had paid what I believed were bribes,” she said.
Ms. Ellison also explained why she had been willing to go along with Mr. Bankman-Fried’s schemes.
Before his companies collapsed, Mr. Bankman-Fried often described himself as a utilitarian — meaning that he made decisions designed to advance the greater good. He told Ms. Ellison that “rules like ‘don’t lie’ or ‘don’t steal’” didn’t fit into that framework, she said.
Over time, she explained, those beliefs started rubbing off on her.
“It made me more willing to do things like lie or steal,” she said.
Mr. Bankman-Fried’s lawyers will question Ms. Ellison when the trial resumes on Thursday.