2.Caroline Ellison — Direct (Part 1)
1,331 lines(Witness excused)
JUDGE KAPLAN: Would this be a good time for lunch?
MS. SASSOON: Your Honor, we can call the next witness for half an hour or we can break now; whatever you prefer.
JUDGE KAPLAN: Whatever you'd like to do. That's for both sides to be heard on.
MS. SASSOON: Okay. The government would like to call Caroline Ellison to the stand.
MR. COHEN: We'd prefer to break, your Honor, if that's all right. You have another burning issue to decide.
JUDGE KAPLAN: Oh, yes. And I'll do it in the time-honored tradition. We'll go for 15 minutes with Ms. Ellison.
(Witness sworn)
COURT CLERK: Thank you. Please be seated.
And if you could please state your name and spell your first and last names for the record.
CAROLINE ELLISON: My name is Caroline Ellison, C-A-R-O-L-I-N-E, E-L-L-I-S-O-N.
JUDGE KAPLAN: You may proceed.
MS. SASSOON: Thank you, your Honor. CAROLINE ELLISON, called as a witness by the Government, having been duly sworn, testified as follows:
DIRECT EXAMINATION BY MS. SASSOON:
MS. SASSOON: Good afternoon, Ms. Ellison.
MS. SASSOON: How do you know the defendant, Sam Bankman-Fried?
CAROLINE ELLISON: We met when I was an intern at Jane Street, and we worked together; later, we worked together at Alameda and dated for a couple of years.
MS. SASSOON: When you were working at Alameda, did you commit any crimes?
CAROLINE ELLISON: Yes, we did.
MS. SASSOON: When you say "we," who do you mean by "we"?
CAROLINE ELLISON: I mean Sam and I and others.
MS. SASSOON: What kinds of crimes did you commit with Sam?
CAROLINE ELLISON: Fraud, conspiracy to commit fraud, and money laundering.
MS. SASSOON: Who did you defraud?
CAROLINE ELLISON: The customers of FTX, the investors in FTX, and lenders to Alameda.
MS. SASSOON: And just to be clear, did you commit these crimes alone?
CAROLINE ELLISON: No. They were committed with Sam.
MS. SASSOON: Do you see the defendant Sam Bankman-Fried in the courtroom today?
And if you need to stand up. I know there are a lot of people here.
MR. COHEN: Stipulated, your Honor.
MS. SASSOON: Your Honor, we'd like the witness to answer the question.
JUDGE KAPLAN: Please answer the question.
CAROLINE ELLISON: Yes, I do.
MS. SASSOON: Can you identify him by where he's sitting in the courtroom and an article of clothing that he's wearing.
CAROLINE ELLISON: He's over there, wearing a suit.
MS. SASSOON: Let the record reflect that the witness looked at and gestured towards the defendant.
JUDGE KAPLAN: Yes.
MS. SASSOON: You said that you defrauded FTX's customers and Alameda's lenders with the defendant. What was his involvement in those crimes?
CAROLINE ELLISON: He was originally the CEO of Alameda and then the owner of Alameda, and he directed me to commit these crimes.
MS. SASSOON: Have you pled guilty to a number of federal felonies in connection with these crimes?
CAROLINE ELLISON: Yes, I have.
MS. SASSOON: Are you testifying today under the terms of a cooperation agreement with the government?
CAROLINE ELLISON: Yes, I am.
MS. SASSOON: You testified that you committed fraud against FTX customers with the defendant. At a general level, what did you do that makes you guilty of fraud against FTX customers?
CAROLINE ELLISON: Alameda took several billion dollars of money from FTX customers and used it for our own investments and to repay debts that we had.
MS. SASSOON: What are some of the ways that Alameda was able to steal customer money?
CAROLINE ELLISON: We had access to an essentially unlimited line of credit on FTX, and we received FTX customer funds directly into our bank accounts as part of the FTX fiat deposit system.
MS. SASSOON: And what was the defendant's role in taking that money and spending it on Alameda?
CAROLINE ELLISON: He was the one who set up the systems that allowed Alameda to take the money, and he was the one who directed us to take customer money to repay our loans.
MS. SASSOON: Around how much FTX customer money did Alameda use to repay its lenders?
CAROLINE ELLISON: In the ballpark of $10 billion.
MS. SASSOON: Once Alameda——and this $10 billion, does that include other spending of customer money besides repaying loans?
CAROLINE ELLISON: Yes.
MS. SASSOON: Once Alameda repaid its lenders and spent billions of dollars of FTX customer money, about how much money had Alameda taken from FTX customers in all by that point?
CAROLINE ELLISON: We ultimately took around $14 billion, some of which we were able to pay back.
MS. SASSOON: You said you defrauded Alameda's lenders with the defendant. How did you defraud Alameda's lenders?
CAROLINE ELLISON: I sent balance sheets to our lenders at the direction of Sam that incorrectly stated the amount of our assets and our liabilities and made Alameda's balance sheet look less risky than it really was.
MS. SASSOON: Turning to November of 2022, what happened when FTX customers tried to withdraw their money in large numbers?
CAROLINE ELLISON: Initially FTX was able to process some withdrawals, but pretty soon it started running out of money. Alameda tried to send more money to FTX, but there wasn't enough to cover all the customer claims.
MS. SASSOON: And why was there not enough money for customers in November of 2022?
CAROLINE ELLISON: Because Alameda had taken it to make our own investments and to repay our lenders.
MS. SASSOON: Your Honor, I can turn now to the witness's background or we can break for lunch.
JUDGE KAPLAN: Okay. We'll break. 2:00, folks.
(Luncheon recess)
AFTERNOON SESSION 2:04 p.m.
(In open court; jury present)
JUDGE KAPLAN: The defendant and the jurors are all present, as they have been throughout.
You may proceed, Ms. Sassoon.
MS. SASSOON: Thank you, your Honor.
BY MS. SASSOON:
MS. SASSOON: Ms. Ellison, I want to pick up with a little bit about your background.
How old are you?
CAROLINE ELLISON: I'm 28.
MS. SASSOON: Where did you grow up?
CAROLINE ELLISON: I grew up in the Boston area.
MS. SASSOON: Where did you go to college?
CAROLINE ELLISON: I went to school at Stanford.
MS. SASSOON: What did you study at Stanford?
CAROLINE ELLISON: I was a math major.
MS. SASSOON: What was your first job out of college?
CAROLINE ELLISON: I worked as a trader on the equities desk at Jane Street.
MS. SASSOON: What is Jane Street?
CAROLINE ELLISON: Jane Street is a trading firm based in New York.
MS. SASSOON: When you began working there, had you worked there before?
CAROLINE ELLISON: I had worked as an intern there before I started full time after college.
MS. SASSOON: How did you meet the defendant?
CAROLINE ELLISON: I met him when I was an intern there and he was a trader.
MS. SASSOON: Did there come a time when you learned that the defendant had started his own company?
CAROLINE ELLISON: Yes. After I started working at Jane Street full time, he left. A few months after he left, I got coffee with him and he told me about a crypto trading firm that he had started called Alameda Research.
MS. SASSOON: Did you start working there?
CAROLINE ELLISON: Yes, I did.
MS. SASSOON: Around when?
CAROLINE ELLISON: This was in March of 2018.
MS. SASSOON: And how did that happen that you started working at Alameda?
CAROLINE ELLISON: After he told me about it, I asked if he wanted me to work there and he said yes and gave me a job offer. I thought about it for a bit and decided to quit Jane Street and move to California to work for him.
MS. SASSOON: Was that job at Alameda your second full-time job?
CAROLINE ELLISON: Yes, that's right.
MS. SASSOON: Initially what was your role at Alameda?
CAROLINE ELLISON: I was a trader.
MS. SASSOON: When you started working at Alameda as a trader, what did you learn shortly after starting this new job?
CAROLINE ELLISON: Shortly after I started, I learned that the company was in much worse shape than I realized. Right before I had started working there, they had suffered large losses and just discovered them. Right after I started working there, the lenders pulled out a lot of their money and more than half of the company ended up quitting.
MS. SASSOON: When the defendant offered you a job at Alameda, had he shared with you the rough circumstances at Alameda?
MS. SASSOON: And when you learned about it, did you discuss this with him?
CAROLINE ELLISON: Yes, I did.
MS. SASSOON: And what did you talk about?
CAROLINE ELLISON: I asked why he hadn't shared more of this information. He apologized and he said that he hadn't known how to tell me.
MS. SASSOON: What were your responsibilities as a trader at Alameda?
CAROLINE ELLISON: It was a variety of things; everything from doing research and working on our——our trading models to monitoring automated systems to moving things like Bitcoin around the different exchanges.
MS. SASSOON: What was the defendant's role at the time that you worked as a trader at Alameda?
CAROLINE ELLISON: He was the CEO.
MS. SASSOON: Did your relationship with the defendant remain purely professional?
CAROLINE ELLISON: No, it didn't.
MS. SASSOON: Can you explain.
CAROLINE ELLISON: Yeah. In the fall of 2018——so not too long after I started working at Alameda——we started sleeping together on and off; in the summer of 2020, we eventually started a romantic relationship.
MS. SASSOON: And over what periods of time were you in a romantic relationship with the defendant?
CAROLINE ELLISON: Yeah. We first dated from summer of 2020 to summer of 2021; we broke up and then got back together in the fall of 2021; and broke up for good in the spring of 2022.
MS. SASSOON: While you dated what, if anything, did the defendant tell you about his professional goals?
CAROLINE ELLISON: He was very ambitious. He talked about wanting Alameda and eventually FTX to be successful and to end up being huge companies that did a wide variety of things. He was also very interested in politics and talked about wanting to use his money to have influence on politics. He said at one point he thought there was a 5 percent chance he would become president some day.
MS. SASSOON: When you say president, what are you referring to?
CAROLINE ELLISON: Of the United States.
MS. SASSOON: Around when did the defendant start the FTX exchange?
CAROLINE ELLISON: It was around the beginning of 2019.
MS. SASSOON: And when the defendant started FTX, what role did he play in Alameda at that time?
CAROLINE ELLISON: He was still the CEO.
MS. SASSOON: Was Alameda a customer on the FTX exchange?
CAROLINE ELLISON: Yes, we were. Initially we were the largest trader on the FTX exchange. Our market share decreased gradually over time.
MS. SASSOON: As a customer on the exchange, what types of things did Alameda do on FTX?
CAROLINE ELLISON: We did trading; we provided on all of the markets on FTX and did our normal sort of arbitrage-type trading there.
MS. SASSOON: Did Alameda buy Bitcoin on FTX?
CAROLINE ELLISON: Yes, we bought Bitcoin.
MS. SASSOON: Did that include purchases of spot Bitcoin?
CAROLINE ELLISON: Yes.
MS. SASSOON: And what about Bitcoin futures?
CAROLINE ELLISON: Yeah, Bitcoin futures too.
MS. SASSOON: How would you describe the relationship between FTX and Alameda when FTX was created?
CAROLINE ELLISON: Initially they were very integrated, they were both run by the same teams; eventually they became more separate over time, though still remained fairly integrated.
MS. SASSOON: If Alameda made money on FTX, who was the beneficiary of those profits?
CAROLINE ELLISON: Sam, because he owned Alameda.
MS. SASSOON: When you started working at Alameda, where did the company get its money from to buy cryptocurrency and to trade?
CAROLINE ELLISON: Initially we were funded primarily by loans from——from acquaintances and friends of friends.
MS. SASSOON: And you touched on this, but what happened to some of the loans that Alameda had after you started working there?
CAROLINE ELLISON: The majority of them were recalled, like a few weeks after I started working there.
MS. SASSOON: Can you explain what you mean by "recalled."
CAROLINE ELLISON: What I mean is that the lenders asked for their money back.
MS. SASSOON: And these lenders were these third-party lenders?
CAROLINE ELLISON: Yes.
MS. SASSOON: What's a third-party lender?
CAROLINE ELLISON: A lender who's separate from us, so not FTX or Alameda.
MS. SASSOON: So after a number of these loans were recalled, how would you describe Alameda's ability to borrow from third parties when you were working there as a trader?
CAROLINE ELLISON: It was initially not very good. This was something Sam talked about a lot as a big priority for the company, figuring out ways to get more loans.
MS. SASSOON: You said it was a big priority for the defendant to get more loans. What did he describe about why he wanted to borrow more money for Alameda?
CAROLINE ELLISON: In order to do more trades or just have the ability to do whatever valuable things came up.
MS. SASSOON: When you say "valuable things," what kinds of things are you talking about?
CAROLINE ELLISON: Things like investments or acquisitions.
MS. SASSOON: And what kinds of things would the defendant say to you about trying to borrow money?
CAROLINE ELLISON: He said that we should be——
MR. COHEN: Your Honor, might we have a time frame.
MS. SASSOON: While you were working as a trader at Alameda.
CAROLINE ELLISON: Yeah, he said that we should be trying really hard to find new sources of money.
MS. SASSOON: Were there times that Alameda did not have enough money to do all the things that the defendant wanted to do in terms of spending and trading?
CAROLINE ELLISON: Yes, definitely.
MS. SASSOON: Did there come a time while you were working at Alameda that Alameda began using money that belonged to FTX customers as a source of capital?
MR. COHEN: Objection, leading.
JUDGE KAPLAN: Sustained. Form.
MS. SASSOON: You said the defendant wanted to be borrowing from various sources. While you worked as a trader, what was one of the sources that Alameda began using?
CAROLINE ELLISON: When we began borrowing from third-party crypto lenders as well as borrowing customer funds that were deposited on FTX.
MS. SASSOON: What was the defendant's involvement in using FTX customer money as a source of funds for Alameda in FTX's early days?
MR. COHEN: Same objection.
JUDGE KAPLAN: Overruled.
CAROLINE ELLISON: Sorry. Can you repeat the question.
MS. SASSOON: Of course. What was the defendant's involvement in using FTX customer money as a source of funds for Alameda in those early days at FTX?
CAROLINE ELLISON: He said that FTX would be a good source of capital, and he set up the system that allowed Alameda to borrow from FTX.
MS. SASSOON: To your knowledge were customers of FTX ever told that their money was being taken and used by Alameda?
CAROLINE ELLISON: No, not to my knowledge.
MS. SASSOON: Before the lunch break you described two ways that Alameda took customer money from FTX, so let's talk about those.
What role, if any, did Alameda have with respect to FTX customer fiat or dollar deposits?
CAROLINE ELLISON: Yeah. Initially, when FTX was getting started, it was hard for it to get bank accounts, so Alameda would receive money in its bank accounts for FTX customer deposits.
MS. SASSOON: And why were FTX customers depositing money?
CAROLINE ELLISON: Because they wanted to use it to maybe convert into cryptocurrencies or just use as collateral for their trading.
MS. SASSOON: What was the approximate time frame of Alameda receiving FTX customer money into its bank account?
CAROLINE ELLISON: I recall it happening as early as 2020. I'm not sure if it was earlier. And I know that it was still happening to some extent in 2022, though we had largely moved to FTX bank accounts at that point.
MS. SASSOON: What was the name of one of the entities that was listed for those bank accounts?
CAROLINE ELLISON: North Dimension is the main one I'm aware of.
MS. SASSOON: Apart from FTX customer funds, as far as you know, did other money get deposited into the North Dimension bank account?
CAROLINE ELLISON: Not that I know of, but I'm not sure about that.
MS. SASSOON: About how much FTX customer money would you approximate got deposited with Alameda over time on a net basis?
MR. COHEN: Objection to form.
JUDGE KAPLAN: I don't understand the objection.
MR. COHEN: Compound, your Honor.
JUDGE KAPLAN: Overruled.
CAROLINE ELLISON: I think it was ballpark of 10 to $20 billion.
MS. SASSOON: How, if at all, did Alameda keep track of these billions of dollars of customer money that it was accepting into its bank accounts?
CAROLINE ELLISON: There was an account on FTX with the email fiat@ftx.com where, if a customer deposited money into an Alameda bank account, then there would be a negative ledger entry created in this account to offset the money that Alameda was receiving.
MS. SASSOON: What about if a customer withdrew money from FTX?
CAROLINE ELLISON: It was supposed to——the process was supposed to happen in reverse, though I later learned that there was a bug that prevented this from happening at least some of the time.
MS. SASSOON: When you say the process was supposed to happen in reverse, do you mean the negative liability was supposed to get less negative?
CAROLINE ELLISON: Yes, that's right.
MS. SASSOON: And was Alameda paying for those withdrawals?
CAROLINE ELLISON: Yes, we were.
MS. SASSOON: You testified that approximately billions of dollars went through the Alameda bank account. Did Alameda maintain most of this FTX customer money in that bank account?
CAROLINE ELLISON: No, we did not.
MS. SASSOON: What did Alameda do with a portion of that money?
CAROLINE ELLISON: Some of that money was withdrawn to other exchanges, was spent on expenses, was used to repay loans, was used for investments.
MS. SASSOON: Was some of that money used for something called stablecoin conversion?
CAROLINE ELLISON: Yes, that's right, some of it was.
MS. SASSOON: What is that?
CAROLINE ELLISON: So a stablecoin is a cryptocurrency that's supposed to track the price of the fiat currency——for example, US dollar. So a USD coin is supposed to be worth the same as a US dollar. So sometimes FTX customers would deposit like US dollars through a bank account and want to withdraw USDC, so Alameda would take the dollars that it deposited, convert them to USDC so they could withdraw.
MS. SASSOON: Is that a way of sending the money back to customers?
CAROLINE ELLISON: Yeah, that's right.
MS. SASSOON: I think you said about $10 billion went into this Alameda bank account. About how much of that was used to send money back to customers in the form of stablecoin?
CAROLINE ELLISON: I think in the ballpark of $2 billion.
MS. SASSOON: So what happened to the remaining $8 billion or so that was not used to convert money to stablecoin for customers?
CAROLINE ELLISON: It was used for Alameda's trading and other purposes.
MS. SASSOON: Who was the CEO of Alameda when this practice of spending FTX customer money on Alameda trading and expenses started?
MR. COHEN: Objection.
JUDGE KAPLAN: Overruled.
CAROLINE ELLISON: Sam was the CEO.
MS. SASSOON: Generally, about how much money was kept in the North Dimension bank account relative to the amount of money that customers were depositing into it?
CAROLINE ELLISON: Much less. I don't think it was more than, you know, in the hundreds of millions of dollars.
MS. SASSOON: Why is that?
CAROLINE ELLISON: Because it could be put to use generating returns if we used it for trading.
MS. SASSOON: And whose decision was that?
CAROLINE ELLISON: It was Sam's initially.
MS. SASSOON: Over time what was your impression of how FTX marketed the securities customer assets on the FTX exchange?
CAROLINE ELLISON: My impression was that FTX marketed itself as a safe, reliable, audited, and highly regulated exchange.
MS. SASSOON: Did you consider using customer deposits in Alameda trading as consistent with that?
CAROLINE ELLISON: No, I didn't.
MS. SASSOON: Why not?
CAROLINE ELLISON: Because it meant that those assets were at risk. I mean, as a trader, I was a customer in other exchanges, and if I knew that this was happening in another exchange, I would feel uncomfortable leaving a lot of money there.
MS. SASSOON: So you had mentioned that Alameda took customer money in two ways. We just talked about one. What was the other way that Alameda took customer money?
CAROLINE ELLISON: We had a——a line of credit on FTX that allowed us to borrow cryptocurrency.
MS. SASSOON: What do you mean by line of credit?
CAROLINE ELLISON: What I mean is that we had a——a setting that allowed us to withdraw coins from our account, even if we didn't have them in our balances, or to sell them again, even if we didn't have them.
MS. SASSOON: And when you talk about using this line of credit, did it allow Alameda to take money off of the FTX exchange to spend elsewhere?
CAROLINE ELLISON: Yes, that's right.
MS. SASSOON: What is collateral?
CAROLINE ELLISON: Collateral is money that you post if you're taking out a loan to secure the loan so that if you don't repay it, then whoever lent you the money can use that collateral and maybe sell it and use it to make up the value of the loan.
MS. SASSOON: Generally, when Alameda traded on other cryptocurrency exchanges besides FTX, did it have to post collateral?
CAROLINE ELLISON: Yes, we did.
MS. SASSOON: As a result of Alameda's line of credit on FTX, was it required to post collateral for its transactions on the exchange?
MS. SASSOON: Were you aware of any other customers that did not have to post collateral to trade on FTX?
MS. SASSOON: How was the money that Alameda could access through this line of credit different from the customer money it was using out of the North Dimension bank account?
CAROLINE ELLISON: It included all coins on FTX, not just the fiat currencies, so we could borrow cryptocurrency as well.
MS. SASSOON: And where was this money being stored before Alameda took it?
CAROLINE ELLISON: It was being stored in FTX's wallets.
MS. SASSOON: And when you say "FTX's wallets," what do you mean by that?
CAROLINE ELLISON: It's like in a blockchain address that you use to store cryptocurrency.
MS. SASSOON: When Alameda took this customer money from FTX's wallets, where did the money go?
CAROLINE ELLISON: To whatever we needed it for, potentially to another exchange or to a DeFi platform.
MS. SASSOON: What gave Alameda this capability?
CAROLINE ELLISON: My understanding is that it was a special setting on FTX.
MS. SASSOON: Was this in FTX's code, as far as you understood it?
CAROLINE ELLISON: I believe so.
MS. SASSOON: Did you implement those features into FTX's code?
MS. SASSOON: Did you generally have access to FTX's code?
CAROLINE ELLISON: No. I'd seen parts of it at various times, but I never made any changes and I don't recall ever seeing this specific part of it.
MS. SASSOON: While you worked at Alameda were you ever told about the exact size of the line of credit?
CAROLINE ELLISON: Not that I recall.
MS. SASSOON: When did you learn about this special feature of this line of credit that allowed Alameda to withdraw customer money?
CAROLINE ELLISON: I learned about it I think around the time that our FTX account was set up; we were told that we had this ability.
MS. SASSOON: And what was your impression of the amount of customer cryptocurrency that Alameda could take using this line of credit?
CAROLINE ELLISON: My impression was that it was unlimited.
MS. SASSOON: In your time as an Alameda trader what instructions, if any, did the defendant give you about using the line of credit?
CAROLINE ELLISON: He said to use it but to make sure we kept money on FTX so that if customers were withdrawing that we would be able to process those withdrawals, but he didn't tell us to keep any more money on FTX beyond that.
MS. SASSOON: And when you say to process customer withdrawals, generally were all customers withdrawing their money at once?
CAROLINE ELLISON: No, no. Usually it was much smaller than that.
MS. SASSOON: You mentioned that Alameda was a market maker on FTX. Was an unlimited line of credit necessary for Alameda to perform its market-making functions on the exchange?
CAROLINE ELLISON: No, I wouldn't say so.
MS. SASSOON: Why not?
CAROLINE ELLISON: Well, there was a——a limited amount of trading on the exchange so there's really only a limited line of credit that could be necessary.
MS. SASSOON: When you say Alameda would have only needed a limited line of credit, what size are we talking about?
CAROLINE ELLISON: Our lines of credit on other exchanges, I think the largest that I can recall were around the hundred or maybe $200 million range.
MS. SASSOON: And that was million, with an M?
CAROLINE ELLISON: Yeah, with an M.
MS. SASSOON: And over time, on FTX, did Alameda's market-making responsibilities increase or decrease?
CAROLINE ELLISON: Over time they decreased. Initially I think we were around half of the volume, and later it went down a lot to something more like 2 percent.
MS. SASSOON: With respect to this line of credit were you aware of any contracts that accompanied borrowing customer money through the line of credit?
CAROLINE ELLISON: No, I wasn't aware of any.
MS. SASSOON: Were you aware of any specific written terms on when Alameda had to return the money that it took?
MS. SASSOON: Were you aware of any terms or understandings at all of when Alameda had to return this money?
MS. SASSOON: How did you know that Alameda was spending customer money and not just FTX revenue?
CAROLINE ELLISON: I mean, initially, when we started borrowing money, we would borrow coins that I knew FTX didn't have on its balance sheet, like relatively illiquid assets. Later on, once we started borrowing in the billions of dollars, I knew that our borrowing exceeded the total amount of money that FTX had from its revenue and from its fundraising so I knew that some of what we were borrowing at least had to be customer funds.
MS. SASSOON: Prior to June 2022 generally in what kinds of amounts was Alameda borrowing through its line of credit?
CAROLINE ELLISON: Could be amounts ranging from, you know, a hundred thousand dollars to $10 million at a time.
MS. SASSOON: And generally for what purpose was it doing that?
CAROLINE ELLISON: For trading purposes.
JUDGE KAPLAN: Ms. Ellison, could you get a little closer to the microphone.
CAROLINE ELLISON: Oh, yeah, sure.
MS. SASSOON: Can you give an example of that.
CAROLINE ELLISON: For instance, if there was a coin that was trading at a higher price on another exchange, like Binance, it might be profitable to withdraw that coin from FTX and sell it on Binance.
MS. SASSOON: Did you perceive this as a benefit to Alameda?
CAROLINE ELLISON: Yeah, I did.
MS. SASSOON: Why?
CAROLINE ELLISON: Because it allowed us to make profitable trades that we wouldn't have been able to make otherwise.
MS. SASSOON: While you were working as a trader at Alameda using this line of credit, did you ever have any concerns about the fact that Alameda was withdrawing customer funds from the exchange?
MR. COHEN: Objection to form.
JUDGE KAPLAN: Sustained.
MS. SASSOON: While you worked as a trader, what, if any, concerns did you have about Alameda using customer funds through the line of credit?
MR. COHEN: Same objection.
JUDGE KAPLAN: Overruled.
CAROLINE ELLISON: Yeah, I was somewhat concerned because I thought it was something that customers weren't aware of and wouldn't be happy if they knew about, though as I was just a trader at the time, I didn't really see it as my role to make decisions on that.
MS. SASSOON: The concerns that you just described having, did you ever voice them to the defendant?
CAROLINE ELLISON: Yeah. I remember one conversation that we had about when FTX was first being audited, when I asked him whether this line of credit would show up on the FTX audit because I was concerned that, you know, it would raise concerns with investors and other people who were seeing the audit, and he said, like, No, don't worry, the auditors aren't going to look at that.
MS. SASSOON: Around when was this conversation that you raised concerns with the defendant?
CAROLINE ELLISON: Maybe something like 2020.
MS. SASSOON: And you described voicing concerns in the context of an audit. What is an audit?
CAROLINE ELLISON: An audit is when an external accounting firm looks at the finances of the company to certify that they are what they say they are.
MS. SASSOON: What, if anything, did the defendant tell you about why FTX was having an audit?
CAROLINE ELLISON: He said it was to appeal to potential investors.
MS. SASSOON: So why did you ask the defendant about whether Alameda using customer funds would cause problems with the audit?
CAROLINE ELLISON: Because I thought that if I were an investor or someone else interested in the finances of FTX, that would be important information about FTX's finances that I would want to know.
MS. SASSOON: When the defendant told you not to worry because the auditors wouldn't see it, did he say anything about whether what you were doing was actually okay?
CAROLINE ELLISON: No, not that I recall.
MS. SASSOON: And as far as you know, was FTX disclosing to auditors, customers, or the public that unlike other customers on exchange, Alameda had this line of credit?
MR. COHEN: Objection to form.
JUDGE KAPLAN: Sustained as to form.
MS. SASSOON: As far as you were aware, was FTX disclosing the existence of Alameda's line of credit to auditors, the public, or customers?
JUDGE KAPLAN: It's compound. Rephrase.
MS. SASSOON: As far as you know, was FTX disclosing to customers the existence of Alameda's line of credit?
CAROLINE ELLISON: No, not as far as I know.
MS. SASSOON: And as far as you know, was Alameda disclosing to auditors the existence of Alameda's line of credit?
MS. SASSOON: And as far as you know, was FTX disclosing to investors the existence of Alameda's line of credit?
MS. SASSOON: Prior to June of 2022 are there any occasions that stand out in your mind when the defendant told you to use Alameda's line of credit?
CAROLINE ELLISON: Yeah. There was one instance when we were buying FTX equity back from Binance that he did so.
MS. SASSOON: What is Binance?
CAROLINE ELLISON: So Binance was another major crypto exchange. They were initially an early investor in FTX but later on became more of a competitor to FTX, but they still owned a large stake of FTX stock. It was about $2 billion. So Sam wanted to buy it back from them.
MS. SASSOON: And around when was this discussion with the defendant about buying back Binance's stake in FTX?
CAROLINE ELLISON: I think it was the summer of 2021.
MS. SASSOON: Mr. Bianco, can you show the witness Government Exhibit 1638.
MS. SASSOON: Do you recognize the people in this photograph?
CAROLINE ELLISON: Yes.
MS. SASSOON: Who are they?
CAROLINE ELLISON: That's Sam with CZ or Changpeng Zhao, who is the CEO of Binance.
MS. SASSOON: The government offers 1638.
MR. COHEN: No objection.
JUDGE KAPLAN: Received.
(Government's Exhibit 1638 received in evidence)
MS. SASSOON: Mr. Bianco, please publish the photograph to the jury.
BY MS. SASSOON:
MS. SASSOON: Who's in this photograph?
CAROLINE ELLISON: This is Sam with CZ, who is the CEO of Binance.
MS. SASSOON: And in the summer of 2021, what was the size of Binance's investment in FTX?
CAROLINE ELLISON: It was around $2 billion.
MS. SASSOON: What did the defendant tell you about buying out Binance's $2 billion stake in FTX?
CAROLINE ELLISON: He said it was really important because if we didn't buy it out, otherwise Binance would do things to mess with FTX.
MS. SASSOON: Where did this conversation take place?
CAROLINE ELLISON: This was in person in the Hong Kong office.
MS. SASSOON: When you say "the Hong Kong office," whose offices?
CAROLINE ELLISON: It was the office where both FTX and Alameda staff worked.
MS. SASSOON: Who was there for this conversation with the defendant about buying out Binance's $2 billion stake?
CAROLINE ELLISON: It was me, Sam, and I believe Trabucco
MS. SASSOON: Who is Trabucco?
CAROLINE ELLISON: He was at the time another trader at Alameda. He later became co-CEOs with me.
MS. SASSOON: Co-CEOs with you of Alameda?
CAROLINE ELLISON: Yes, that's right.
MS. SASSOON: What was your reaction when the defendant proposed buying out Binance's $2 billion stake in FTX?
CAROLINE ELLISON: I was concerned about the amount of money. Like, FTX had just raised a lot of money, which made me feel more confident about its financial position, but then we were going to use I think it was more than the amount of money that they had just raised to buy back this share of FTX from Binance.
MS. SASSOON: What did you say to the defendant?
CAROLINE ELLISON: I said something like, We don't really have the money for this, we'll have to borrow from FTX to do it.
MS. SASSOON: When you said, We'll have to borrow from FTX to do it, what did you mean?
CAROLINE ELLISON: I meant use our line of credit on FTX.
MS. SASSOON: When you said to the defendant that you didn't really have the money and you would have to borrow from FTX, what did he say?
CAROLINE ELLISON: He said, That's okay, I think this is really important, we have to get it done.
MS. SASSOON: And did you get it done?
CAROLINE ELLISON: Yes, we did.
MS. SASSOON: About how much money did Alameda take from FTX customers to buy out Binance?
CAROLINE ELLISON: It was in the ballpark of $1 billion.
MS. SASSOON: Is this the first time you recall Alameda spending about a billion dollars of customer cryptocurrency from FTX?
MR. COHEN: Objection.
JUDGE KAPLAN: What's the objection?
MR. COHEN: Builds a conclusion into the sentence. This is supposed to be direct examination, your Honor.
MS. SASSOON: The witness just testified to those facts.
JUDGE KAPLAN: Overruled.
CAROLINE ELLISON: Yeah, the first time that I can recall an amount that large being taken from FTX.
MS. SASSOON: Who made that decision?
CAROLINE ELLISON: It was Sam's decision.
MS. SASSOON: And what was Sam's title at Alameda at the time?
CAROLINE ELLISON: At the time I believe he was CEO.
MS. SASSOON: What, if anything, did you take away from this experience with the defendant telling you to buy out Binance using Alameda's line of credit?
CAROLINE ELLISON: I took away more confirmation that he saw Alameda's line of credit on FTX as a general backstop source of funds for whenever we needed funds.
MS. SASSOON: When you say "whenever we needed funds," who are you referring to?
CAROLINE ELLISON: Alameda.
MS. SASSOON: And after that, when Alameda needed money for trading or other expenses, what sources of capital did you draw from?
CAROLINE ELLISON: We drew from——I mean, we were funded largely with loans at that point, and if we needed money for any particular thing, we would take from exchanges, including FTX.
MS. SASSOON: You mentioned loans. Besides the line of credit, what was Alameda's primary source of money to invest and do trading in 2021?
CAROLINE ELLISON: It was loans from third-party crypto lending desks.
MS. SASSOON: And initially, when you started working at Alameda, about how much money was Alameda borrowing from third parties?
CAROLINE ELLISON: Maybe around a hundred million dollars.
MS. SASSOON: Did there come a time when the defendant spoke to you about getting more loans?
CAROLINE ELLISON: Yeah. Around the end of 2018 or beginning of 2019, he met people from Genesis, which was a large crypto lending desk, and he told me he was very excited about that and he thought we should try to get loans from them.
MS. SASSOON: Did he mention any other lenders?
CAROLINE ELLISON: None at the time that I recall, though we later, you know, over the course of, especially in 2021, found more lenders.
MS. SASSOON: And prior to that had Alameda faced any difficulty in getting loans?
CAROLINE ELLISON: Yeah, for a lot of 2018, we had a lot of trouble getting loans.
MS. SASSOON: When did that change?
CAROLINE ELLISON: It started to improve in the beginning of 2019, but the situation definitely got better towards the end of 2019 when we——after we created FTT.
MS. SASSOON: I want to talk about FTT in a moment. But let me ask you: If Alameda had a line of credit on FTX, why was Alameda also seeking out these other lenders?
CAROLINE ELLISON: I mean, in those days, back in 2019, the amount of FTX customer deposits wasn't very large so it wasn't a very good source of funds for Alameda.
MS. SASSOON: You mentioned that Alameda was able to borrow more money with the creation of FTT. What is FTT?
CAROLINE ELLISON: FTT was the FTX exchange token.
MS. SASSOON: What does that mean?
CAROLINE ELLISON: That means that FTX would take a third of the revenue that they earned from fees and use it to buy up this token, so effectively they were trying to transfer that value to the token holders.
MS. SASSOON: How did FTT come about? How did it originate?
CAROLINE ELLISON: Sam created it.
MS. SASSOON: And when you say he created it, can you explain that.
CAROLINE ELLISON: I think he and others on the business development team came up with the idea and some of the developers at FTX created the actual token.
MS. SASSOON: And what reason, if any, did the defendant give for creating FTT?
CAROLINE ELLISON: Initially he said that it would be a good way to raise some funds and build an equity cushion for FTX, and he thought it had the potential to get really big, similar to BNB or other popular exchange tokens at the time.
MS. SASSOON: So when you say the defendant created FTT, in practice, does that mean creating a bunch of coins online?
CAROLINE ELLISON: Yeah.
MS. SASSOON: And how were these coins that the defendant created initially distributed?
CAROLINE ELLISON: Some were sold in the seed round to outside investors and to employees, and the rest were owned by Alameda.
MS. SASSOON: Roughly what percentage of that initial distribution of FTT went to Alameda?
CAROLINE ELLISON: Not sure. Maybe, ballpark, 60 or 70 percent.
MS. SASSOON: What did Alameda pay for its initial supply of FTT that was about 60 or 70 percent of all the tokens?
CAROLINE ELLISON: Nothing as far as I know.
MS. SASSOON: So it got the tokens for free.
CAROLINE ELLISON: As far as I know.
MS. SASSOON: And when FTT was first actually listed for sale, what was the approximate price?
CAROLINE ELLISON: The price in the seed round was 10 cents, but when it was listed on exchanges, it quickly went up to around a dollar.
MS. SASSOON: What, if any, instructions did the defendant give you about trading FTT?
CAROLINE ELLISON: He said that he thought 1 dollar was a psychologically important price, and if it went below a dollar, then people might lose confidence in it, so that we should try to buy it if it started going below a dollar.
MS. SASSOON: And again, when you say "we" should try to buy FTT if it goes below a dollar, who's the "we"?
CAROLINE ELLISON: Alameda.
MS. SASSOON: Over time did the——
JUDGE KAPLAN: Excuse me for a minute. You used the phrase "seed round." Would you explain to the jury what you meant by that.
CAROLINE ELLISON: Yeah. "Seed round" means an initial investment round. So before FTT was ever listed on exchanges, it was sold privately to some investors for the price of 10 cents.
BY MS. SASSOON:
MS. SASSOON: And then it was eventually listed publicly?
CAROLINE ELLISON: Yes, that's right.
MS. SASSOON: And is that when it went to about a dollar?
CAROLINE ELLISON: Yes.
MS. SASSOON: Over time did the value of FTT change?
CAROLINE ELLISON: Yeah. It eventually went up to around $50.
MS. SASSOON: And that would be $50 for one FTT token?
CAROLINE ELLISON: Yes, that's right.
MS. SASSOON: And the total value of FTT held by Alameda, how did that change?
CAROLINE ELLISON: It went up a lot with the price of FTT, so it was several billion dollars at one point.
MS. SASSOON: What, if anything, did the defendant say to you about the benefit to Alameda from these FTT coins if it became worth much more money?
CAROLINE ELLISON: He said that, you know, after——shortly after they were listed, he said that we should start putting them on our balance sheet and that they would be able to get us more loans from third-party lenders.
MS. SASSOON: Over time what additional instructions, if any, did the defendant give you about trading FTT?
CAROLINE ELLISON: At various points he——he gave us a lot of instructions about FTT; at various points he instructed us to buy if there was a large amount of selling or if the price was going down too much.
MS. SASSOON: And do you recall any specific occasions when the defendant told you to buy FTT when the price was going down?
CAROLINE ELLISON: Yeah. One that comes to mind is in 2021, when Binance was selling some of their stake in FTT.
MS. SASSOON: What did the defendant tell you to do?
CAROLINE ELLISON: He said to start buying once the price had gone down a bit.
MS. SASSOON: Was this something the defendant discussed openly in front of you with other employees?
CAROLINE ELLISON: No. He tended to be pretty careful about not discussing it too openly.
MS. SASSOON: What, if anything, did the defendant say to you about that?
CAROLINE ELLISON: He at one point got upset at me when I had discussed our FTT trading what he thought was too openly around several other employees and he said to keep our discussions of FTT trading, you know, between us or us and a few other people.
MS. SASSOON: Mr. Bianco, can you show the witness Government Exhibit 1622.
MS. SASSOON: Do you recognize this?
CAROLINE ELLISON: Yes, I do.
MS. SASSOON: What is this?
CAROLINE ELLISON: This is a Signal chat between me and Victor Xu, who was a trader at Alameda at the time.
MS. SASSOON: The government offers Government Exhibit 1622.
MR. COHEN: No objection, your Honor.
JUDGE KAPLAN: Received.
(Government's Exhibit 1622 received in evidence)
MS. SASSOON: Mr. Bianco, please publish this exhibit for the jury.
BY MS. SASSOON:
MS. SASSOON: So who is Victor Xu, who is on this chat?
CAROLINE ELLISON: He was a trader at Alameda at the time.
MS. SASSOON: What is the date on this chat?
CAROLINE ELLISON: It's July 16, 2021.
MS. SASSOON: And was this around the time of the Binance transaction?
CAROLINE ELLISON: Yes, it was.
MS. SASSOON: Can you read your messages to Victor Xu.
CAROLINE ELLISON: Yeah. "So sorry if I was being cagey about the FTT convo. FTT price is definitely something SBF has got upset at me for talking about too publicly before so I was feeling stressed out about that/struggling how to respond. Obvi important to get right tho, and I think we get fucked up by not taking it down more earlier."
MS. SASSOON: What were you referring to when you said you were being cagey about the FTT convo?
CAROLINE ELLISON: I was having a conversation with Victor where he was expressing disagreement with our FTT trading strategy and he said that we should be buying less, we should be waiting for it to——the price to go down more before we bought, and I was pushing back against him because Sam had said he wanted to buy FTT at this price.
MS. SASSOON: Did what Victor Xu said to you, that you shouldn't be buying at the low price, make sense to you?
CAROLINE ELLISON: Yeah, it did make sense. I thought that what he was saying would be a more profitable trading strategy.
MS. SASSOON: So why were you pushing for a different trading strategy?
CAROLINE ELLISON: Because Sam had said that he wanted to buy more, and I——I understood that to be because he didn't want to spook the market or didn't want to put any of our loans in danger by having the price go down too much.
MS. SASSOON: What was the effect of buying FTT when the price was going down?
CAROLINE ELLISON: The effect was that we made the price go back up and prevented it from going down very much but that we lost some money doing so.
(Continued on next page)
MS. SASSOON: You said FTT helped Alameda secure more third-party loans. What, if any, financial information did Alameda provide its lenders about Alameda?
CAROLINE ELLISON: We provided balance sheets to our lenders, traditionally quarterly. We would also provide them more frequently if a lot of things were going on or if lenders were asking for more frequent updates.
MS. SASSOON: What is a balance sheet?
CAROLINE ELLISON: A balance sheet is a document that shows the company's assets and liabilities, so it showed what were the things that we owned, how much they were worth, and what were our debts.
MS. SASSOON: And who would prepare the balance sheet?
CAROLINE ELLISON: Various people did it at Alameda over time, but I was one of the primary ones, and I was the one who did it throughout 2022.
MS. SASSOON: What was the purpose of sending balance sheets to Alameda's lenders?
CAROLINE ELLISON: To provide them with information on Alameda so they could assess how risky it was to lend to us.
MS. SASSOON: Initially did you put Alameda's FTT holdings on Alameda's balance sheet?
CAROLINE ELLISON: Not initially.
MS. SASSOON: Why not?
CAROLINE ELLISON: Because it was a very large number because we owned a lot of the supply of FTT, but I thought it was somewhat misleading because we wouldn't have been able to sell all the FTT for that much and it was much larger than the rest of the items on our balance sheet at the time.
MS. SASSOON: Let's break that down. You said you thought it was misleading to put the FTT on the balance sheet because you couldn't sell it for that much. When you say that much, what numbers are you talking about?
CAROLINE ELLISON: Like maybe it was mark to market worth around $200 million at the time, so the price basically market price was around $200 million. But if Alameda had actually tried to sell the FTT that we owned, it would have ended up kind of making us way less than that.
MS. SASSOON: Why did you believe it was the case that if Alameda actually tried to sell its FTT the price would drop significantly?
CAROLINE ELLISON: Because I was trading FTT and watching the markets, and I could see when people, like some of the seed round investors started to sell their FTT after it listed publicly, and I could see how much they were selling and see how much that moved the price.
MS. SASSOON: Who owned most of the FTT?
CAROLINE ELLISON: It was Alameda.
MS. SASSOON: You believe there was a market for the amount of FTT that Alameda owned?
CAROLINE ELLISON: Not at the time.
MR. COHEN: Can we have a time frame, your Honor?
JUDGE KAPLAN: Yes.
MS. SASSOON: Sure.
MS. SASSOON: 2021.
CAROLINE ELLISON: No. I don't think there was a market for the amount of FTT Alameda owned in 2021.
MS. SASSOON: Did you ever come to believe that there was a market for the entire holdings that Alameda had of FTT on its balance sheet?
CAROLINE ELLISON: No. I would say it was always a lot more than what just kind of the normal market trading could support. If we wanted to sell that amount, we would have had to find sort of a buyer who was willing to do a large block trade or something like that.
MS. SASSOON: You said initially you didn't put FTT on the balance sheet because you thought it would be misleading. Did there come a time when you did put FTT on Alameda's balance sheet?
CAROLINE ELLISON: Yeah.
MS. SASSOON: Why did you do that?
CAROLINE ELLISON: Sam directed me to do so.
MS. SASSOON: When the defendant directed you to put FTT on Alameda's balance sheet, what, if anything, did he explain about that?
CAROLINE ELLISON: He said he thought it would help us get more loans from Genesis and from other lenders.
MS. SASSOON: What was your response to that initially?
CAROLINE ELLISON: I thought it was a little potentially misleading to put it on, but he said that as long as we sort of put it on and broke it out into its own category and made it clear that it was FTT that he thought it was fine, and I agreed with that.
MS. SASSOON: When you say you thought it was misleading, did you share that thought with the defendant?
CAROLINE ELLISON: Yeah. I think I did initially.
MS. SASSOON: Did you put FTT on the balance sheet?
CAROLINE ELLISON: Yeah.
MS. SASSOON: In these discussions with the defendant, did he dispute that FTT was, in practice, worth less than the value on the balance sheet?
CAROLINE ELLISON: No, not that I recall.
MS. SASSOON: And did putting FTT on the balance sheet help Alameda get more loans?
CAROLINE ELLISON: Yeah.
MS. SASSOON: Were there other cryptocurrency coins that the defendant created or helped promote?
CAROLINE ELLISON: Yeah. Some of the other major ones were Serum, MAPS, OXY, and Solana, which he didn't create, but he played a large role in promoting.
MS. SASSOON: Did these coins, along with FTT, have a nickname?
CAROLINE ELLISON: Yes. They were sometimes referred to as Sam coins.
MS. SASSOON: Why were they sometimes referred to as Sam coins?
CAROLINE ELLISON: Because he either created them or played a large role in them.
MS. SASSOON: Did Alameda have holdings in these other Sam coins?
CAROLINE ELLISON: Yes. We had large holdings.
MS. SASSOON: And were they ultimately put on Alameda's balance sheet?
CAROLINE ELLISON: Yeah.
MS. SASSOON: How would you describe the overall liquidity of these coins as a group?
CAROLINE ELLISON: Overall, it was not very high, so it varied between coins. Like Solana was significantly more liquid than the other ones.
MS. SASSOON: When we are seeing liquidity, can you just be clear what we mean by that?
CAROLINE ELLISON: Yeah. So liquidity is a measure of how much market trading activity there is in something and how easy it is to buy and sell it without moving the price too much. So for some of these coins, like MAPS, if you tried to buy a little bit of MAPS, the price would go up a lot, and, conversely, if you tried to sell it, the price would go down a lot.
MS. SASSOON: Who owned most of these Sam coins?
CAROLINE ELLISON: It varies by coin, but Alameda was generally a large holder for some coins. Like Serum, Alameda had significant holdings, but also Sam personally and other people at the company personally held a lot.
MS. SASSOON: What was the effect of that on the price of these coins?
CAROLINE ELLISON: It meant that there wasn't a very large supply. So if most of it was held by Alameda or FTX or insiders, then there weren't that many other people left to sell the coin, basically.
MS. SASSOON: If Alameda had these coins on its balance sheet, how does that correspond to the amount of money Alameda could actually get if it tried to sell blocks of these coins?
CAROLINE ELLISON: If we actually tried to go out and sell all these coins in the market, we would end up getting a lot less.
MS. SASSOON: Did your title at Alameda ever change?
CAROLINE ELLISON: Yeah. In 2021, I was appointed co-CEO. And in 2022, I became CEO when my co-CEO stepped down.
MS. SASSOON: Around when in 2021 were you promoted to co-CEO?
CAROLINE ELLISON: I believe it was summer of 2021.
MS. SASSOON: What did the defendant say to you about why he was promoting you to co-CEO?
CAROLINE ELLISON: He said that he had been wanting to step down as CEO officially of Alameda for a while and that he thought it was important to separate Alameda and FTX more optically and not have him be too officially associated with Alameda.
MS. SASSOON: When you say he wanted to separate FTX and Alameda optically, what, if anything, did he explain about why that was important?
CAROLINE ELLISON: He said that it was a concern that a lot of FTX customers had that Alameda and FTX's relationship was too close and, therefore, that FTX might favor Alameda over other traders.
MS. SASSOON: At the time you were named co-CEO, what was your personal relationship status with the defendant?
CAROLINE ELLISON: We were on a break at the time.
MS. SASSOON: Did there come a time that you dated again?
CAROLINE ELLISON: Yes, there did.
MS. SASSOON: Over what time period?
CAROLINE ELLISON: We started dating again in, I believe, November of 2021.
MS. SASSOON: How would you describe the power dynamic of your personal relationship with the defendant?
MR. COHEN: Objection, your Honor.
JUDGE KAPLAN: Sustained. Form.
MS. SASSOON: How would you describe the nature of your personal relationship with the defendant?
CAROLINE ELLISON: I would say the whole time that we were dating he was also my boss at work, which created some awkward situations. I would say in our personal relationship there was a general theme that I sort of wanted more from our relationship but often felt like he was distant or not paying attention to me.
MS. SASSOON: Why did you ultimately break up?
CAROLINE ELLISON: Because of those things I mentioned, because I felt like he wasn't paying much attention to me or spending much time with me in the relationship.
MS. SASSOON: Were you and the defendant open with other FTX and Alameda employees about your personal relationship?
CAROLINE ELLISON: Not really. The first time that we dated, we agreed to keep it secret, though some people did end up finding out. The second time that we dated, Sam agreed that we could make it public, and we were living together, but it still wasn't something that we really talked about openly with people much.
MS. SASSOON: When you became co-CEO of Alameda, did your salary change?
MS. SASSOON: What was your salary throughout your time at Alameda?
CAROLINE ELLISON: $200,000 a year.
MS. SASSOON: Did it remain that way?
CAROLINE ELLISON: Yeah.
MS. SASSOON: What about bonuses and other monetary benefits that you received?
CAROLINE ELLISON: Yeah. I received bonuses twice a year. They ranged from in the range of $100,000 at the beginning, when I started working there, to the largest one, which was for 2021, was around $20 million.
MS. SASSOON: What did you do with that money?
CAROLINE ELLISON: I generally kept most of it on the FTX exchange. I withdrew about $10 million for a personal investment in a startup. I also withdrew a hundred thousand dollars for a loan to my parents, and I withdrew several million dollars each for taxes and for donations, including transfers to my personal donor advised fund.
MS. SASSOON: As a trader at Alameda and then co-CEO and then CEO, did you ever get an equity stake in Alameda?
CAROLINE ELLISON: No, I did not.
MS. SASSOON: Did you ever ask for equity in Alameda?
CAROLINE ELLISON: Yes. I did ask Sam after I became co-CEO. He initially seemed somewhat receptive but eventually said that he thought it was too complicated and it didn't make sense to give me equity in Alameda.
MS. SASSOON: Who retained ownership of Alameda throughout your time there?
CAROLINE ELLISON: It was Sam or at least mostly Sam.
MS. SASSOON: How about FTX, did you get any equity in FTX?
CAROLINE ELLISON: I did receive some equity in FTX as part of my bonuses.
MS. SASSOON: About how much?
CAROLINE ELLISON: I believe it was around .5 percent of FTX.
MS. SASSOON: Let's talk a little bit more about when you became co-CEO in the summer of 2021. How did your job responsibilities change?
CAROLINE ELLISON: They didn't really change with the title change. I would say over time I started like -- both before and after the title change I gradually took on more responsibility at Alameda.
MS. SASSOON: Did you feel equipped to be CEO of Alameda?
CAROLINE ELLISON: Not particularly. I felt like it was a big job, and I wasn't very experienced. But Sam said that he thought it made sense for me to be co-CEO and that there wasn't a better person for the job.
MS. SASSOON: Did you have an employment agreement as CEO?
CAROLINE ELLISON: I did, yeah.
MS. SASSOON: Under that employment agreement who did you report to, if anyone?
CAROLINE ELLISON: To Sam.
MS. SASSOON: How would you describe the decision-making process once you were co-CEO of Alameda?
CAROLINE ELLISON: I handled a lot of day-to-day decisions and responsibilities in Alameda. But for any major decisions I would always run them by Sam, and I would always ultimately defer to Sam if he thought that we should do something.
MS. SASSOON: Why were you running big decisions by Sam and deferring to Sam?
CAROLINE ELLISON: I mean, he was the person I officially reported to. He owned the company. And he was the one who set my compensation and had the ability to fire me if he wanted.
MS. SASSOON: Did your job responsibilities in 2021 include preparing Alameda balance sheets?
CAROLINE ELLISON: Yeah, it did.
MS. SASSOON: What about in 2022?
CAROLINE ELLISON: Yeah.
MS. SASSOON: Apart from the Sam coins that we have talked about, how would you gather information for the balance sheet?
CAROLINE ELLISON: There was a somewhat automated process involving a spreadsheet that would pull data from Alameda's systems, but then it would also require a lot of manual work by me to find a mistake or mistakes or to look at discrepancies.
MS. SASSOON: In preparing Alameda's balance sheets what, if anything, did you learn about loans Alameda was making?
CAROLINE ELLISON: I learned that Alameda had loaned billions of dollars to Sam, Gary, Nishad, and to other entities that were owned by Sam.
MS. SASSOON: Did you know about all of these loans at the time that they were made?
CAROLINE ELLISON: Not necessarily. Some of them I hadn't recalled knowing about them at the time they were made and only learned about them after the fact.
MS. SASSOON: The ones you didn't know about, how did you learn about them?
CAROLINE ELLISON: Either by looking through transfers when I was preparing our balance sheets or by asking people if they were aware of any loans.
MS. SASSOON: Were there some loans that you signed?
CAROLINE ELLISON: Yeah.
MS. SASSOON: What was the rough total size of these loans to company insiders like the defendant, Nishad, and Gary?
CAROLINE ELLISON: Just the loans to them or including the other entities as well?
MS. SASSOON: Thanks for the clarification.
Including entities controlled by them.
CAROLINE ELLISON: I recall in mid 2022 it was around $5 billion.
MS. SASSOON: Did you receive similar loans from Alameda?
CAROLINE ELLISON: I received one loan of $3.5 million.
MS. SASSOON: What was that loan for?
CAROLINE ELLISON: It was for a gambling company that some people at FTX wanted to start, and they asked if they could start it in my name since I wasn't affiliated with FTX. So the money -- like I never really saw or used the money. It went straight to this -- to seed this gambling company.
MS. SASSOON: Were these billions of dollars in loans that you mentioned, what did you learn about how this money was being spent?
CAROLINE ELLISON: A lot of it was being spent on investments, including in FTX and in other companies, a lot of early-stage companies. Some was used for political donations.
MS. SASSOON: You mentioned investments. Can you describe a little bit more what types of investments these loans were being used for?
CAROLINE ELLISON: Yeah. There was like a large investment in a Bitcoin mining firm, another large one in an AI company, another in, I believe it was like a venture fund.
MS. SASSOON: Did you learn of any large loans to any company insiders besides the defendant, Gary, and Nishad?
CAROLINE ELLISON: Yeah. I learned that Alameda had loaned, I think it was around $35 million to Ryan Salame as well.
MS. SASSOON: What, if anything, did the defendant say to you about Ryan Salame as an employee?
CAROLINE ELLISON: He said that he really valued Ryan for his loyalty.
MS. SASSOON: What, if anything, did you learn about how the multimillion dollar loans to Ryan Salame were being spent?
CAROLINE ELLISON: They were being used for donations to republican candidates.
MS. SASSOON: What, if anything, did the defendant tell you about spending money on politics?
CAROLINE ELLISON: He said he thought it was very effective, that you could get very high returns in terms of influence by spending relatively small amounts of money.
MS. SASSOON: When you say relatively small amounts of money, what are we talking about here?
CAROLINE ELLISON: I mean, he donated, I think, $10 million to Biden, and that was sort of a relatively small amount of money compared to the amount of money he ended up having later on, but he still felt like that was something that got him some amount of influence and recognition.
MS. SASSOON: You have described these billions of dollars of loans that Alameda was making. What was your reaction to that?
CAROLINE ELLISON: I was somewhat concerned because a lot of these loans seemed to be going to very illiquid things, so that the loans couldn't necessarily be paid back easily.
MS. SASSOON: When you say they were going to illiquid things, can you explain what you meant by that?
CAROLINE ELLISON: What I mean is, they were being used to make investments in things like early-stage companies that you couldn't easily sell your stake in if you needed to repay the loans.
MS. SASSOON: Why, if you're investing in an early-stage company, is it difficult to sell that investment?
CAROLINE ELLISON: Because it's not a company that's listed on say the New York Stock Exchange or the NASDAQ. In order to sell your stake, you would need to go out and find a person who is willing to buy it, and that might be hard, depending on the market conditions or depending on who you know.
MS. SASSOON: You mentioned that you learned about some of these loans while working on Alameda balance sheets. How did you feel about including these loans on Alameda's balance sheet?
CAROLINE ELLISON: I didn't feel good about it. I thought it was something that might raise concerns for Alameda's lenders.
MS. SASSOON: Why do you think that those loans to insiders might raise concerns with lenders?
CAROLINE ELLISON: For one thing, because I didn't think that they would -- Alameda would easily be able to get the loans back if we needed to, and for another thing, I thought it might look like Alameda was sort of funneling or giving money to the FTX executives.
MS. SASSOON: In your view, how did these loans to FTX executives affect the health of Alameda's balance sheet?
CAROLINE ELLISON: They made Alameda significantly riskier.
MS. SASSOON: You testified that, by late 2021, Alameda had increased its borrowing -- by late 2021, how would you describe the state of Alameda's borrowing from third parties?
CAROLINE ELLISON: By late '21, we were borrowing a lot. I think it was in the ballpark of 10 to $15 billion from third parties.
MS. SASSOON: Was that billion with a B?
CAROLINE ELLISON: Yeah.
MS. SASSOON: What kinds of loans did Alameda get from these third-party lenders?
CAROLINE ELLISON: They were either in -- U.S. dollars, in stablecoins, Bitcoin, or ETH were the most common currencies.
MS. SASSOON: How would you describe the terms of these loans?
CAROLINE ELLISON: They were mostly open-term loans, meaning that the lender could ask for it to be repaid at any time, and Alameda would have to repay it.
MS. SASSOON: How would you describe the riskiness of an open-term loan?
CAROLINE ELLISON: I would say it's more risky than a fixed-term loan because of the risk that the loan could be called at any time, and then you would have to repay it even if you don't necessarily have the funds available.
MS. SASSOON: Just to be clear, when you say the loan could be called at any time, what does that mean?
CAROLINE ELLISON: When a loan is called, that means the lender asks for their money back.
MS. SASSOON: So what kind of risk did that present to Alameda?
CAROLINE ELLISON: It put us in a situation where if all of our loans were called at once but we didn't have the funds available, we might have to default on our loans or go bankrupt.
MS. SASSOON: Who was driving the strategy in late 2021 when it came to how much Alameda --
MR. COHEN: Objection to form.
JUDGE KAPLAN: Sustained.
MS. SASSOON: Who if anyone, as far as you know, was directing Alameda's strategy with respect to borrowing in late 2021?
CAROLINE ELLISON: Sam was directing us at the time to borrow as much money as we could from whatever sources we could find at whatever terms we could get. This was something he emphasized a lot and talked to us about frequently.
MS. SASSOON: In these frequent conversations with the defendant about borrowing money, what, if anything, did he say about the purpose of trying to borrow more and more money?
CAROLINE ELLISON: Aside from just the general benefits of having money on hand if we needed it, he also said that he wanted to make a lot of investments, potentially in the billions of dollars of venture investments, so investments in like relatively early-stage companies.
MS. SASSOON: What was your view of this strategy being proposed by the defendant of borrowing more and more money for investments?
CAROLINE ELLISON: I thought it was risky to borrow money through these open-term loans when it might get called at any time if we were going to put the money in these investments that couldn't be sold easily.
MS. SASSOON: Just to be clear, what connection did you see between having open-term loans and these illiquid long-term investments?
CAROLINE ELLISON: I saw that as creating a risk. Because if the loans were called, we wouldn't necessarily be able to sell the investments to repay our loans.
MS. SASSOON: During your time working with the defendant, how, if at all, did he describe his approach to risk taking?
CAROLINE ELLISON: He described himself as truly risk neutral, meaning that -- most people are risk averse, meaning that they would rather not take a risk if they don't have to, or they try to avoid risks. But he said that he was totally comfortable taking a risk, as long as he thought it was a positive EV.
MS. SASSOON: What do you mean by positive EV?
CAROLINE ELLISON: EV stands for expected value, so that was a term that we used a lot when talking about trading. So, yeah. Positive EV just means that sort of, on average, you expect it to pay off well even if maybe there are lots of cases where you will end up with zero or you'll end up losing lots of money, because there are like some cases where you make a lot of money.
MS. SASSOON: Did the defendant ever give any example to describe his approach to risk taking?
CAROLINE ELLISON: Yeah. He talked about being willing to take large coin flips, like a coin flip where -- if it comes up tails, you might lose $10 million, but if it comes up heads, you make slightly more than $10 million.
MS. SASSOON: Did he ever give other coin-flip examples?
CAROLINE ELLISON: Yeah. I guess he also talked about this in the context of thinking about what was good for the world, saying that he would be happy to flip a coin, if it came up tails and the world was destroyed, as long as if it came up heads the world would be like more than twice as good.
MS. SASSOON: Your Honor, this would be a natural point for a break, if we are going to take an actual break.
JUDGE KAPLAN: We are.
Fifteen minutes.
(Jury not present)
(Recess)
JUDGE KAPLAN: Let's get the witness, please.
(Jury present)
JUDGE KAPLAN: The defendants and the jurors are present, as they have been all throughout.
Please be seated.
Ms. Sassoon, when the jury is all seated.
MS. SASSOON: Thank you, your Honor.
MS. SASSOON: Before the break we were talking about expected value. As part of your job, did you analyze scenarios and their expected value?
CAROLINE ELLISON: Yeah, I did.
MS. SASSOON: Can you explain again what you mean by expected value.
CAROLINE ELLISON: Expected value is the average amount you expect to make or lose in a scenario, taking into account the different potential outcomes and their probabilities.
MS. SASSOON: Mr. Bianco, can you please show the witness Government Exhibit 48B.
MS. SASSOON: Do you recognize this?
CAROLINE ELLISON: Yeah.
MS. SASSOON: Are these notes you took in the course of your time at Alameda?
CAROLINE ELLISON: Yeah. This is an excerpt from a sort of personal to-do list Google Doc that I kept.
MS. SASSOON: The government offers Government Exhibit 48B.
MR. COHEN: No objection.
JUDGE KAPLAN: Received.
(Government Exhibit 48B received in evidence)
MS. SASSOON: Mr. Bianco, can you publish Government Exhibit 48B.
MS. SASSOON: Did you write parts of this page?
CAROLINE ELLISON: Yes, I did.
MS. SASSOON: Is this page part of a larger document?
CAROLINE ELLISON: Yes.
MS. SASSOON: What was that document?
CAROLINE ELLISON: It was a Google Doc that I kept with personal to-do lists and other notes.
MS. SASSOON: Was that a common practice of yours?
CAROLINE ELLISON: Yes, it was.
MS. SASSOON: Can you just generally describe how you would keep these Google Docs or lists?
CAROLINE ELLISON: It was in a very disorganized way. I would sort of add notes to whatever part of the doc I was currently looking at rather than chronologically.
MS. SASSOON: All the things on this page, check on Indodax, better email system, did they all relate to each other?
MS. SASSOON: Are these notes you took at different times?
CAROLINE ELLISON: Potentially, yeah.
MS. SASSOON: I want to direct your attention to the part that's highlighted in gray here.
Who wrote this?
CAROLINE ELLISON: That was written by Sam.
MS. SASSOON: How did it end up on your Google Doc?
CAROLINE ELLISON: I copied and pasted that from a message that he sent me asking me to analyze this scenario.
(Continued on next page)
BY MS. SASSOON:
MS. SASSOON: And do you recall roughly when it was that you copied and pasted this list that the defendant wrote into your Google Doc?
CAROLINE ELLISON: Yeah, I think it was like summer or fall of 2021.
MS. SASSOON: And so what is this, before we take a closer look at each line?
CAROLINE ELLISON: This is a potential bad scenario for FTX and Alameda.
MS. SASSOON: What kind of bad scenario, in broad strokes?
CAROLINE ELLISON: Scenario where the crypto market is down and a lot of our investments are down a lot and we've sort of lost a lot of money.
MS. SASSOON: And what did the defendant say to you in connection with sending you this bad scenario?
CAROLINE ELLISON: He referred to it as a 10th percentile scenario, meaning that he thought 10 percent of outcomes were similar to this or worse.
MS. SASSOON: And why did he send this to you? What did he say about that?
CAROLINE ELLISON: He said he wanted to analyze what would happen to our balance sheet in this scenario.
MS. SASSOON: Let's take a closer look at this bad scenario that the defendant sent you.
Item No. 1 says "Most of crypto down 50 percent." What does that refer to?
CAROLINE ELLISON: That means like the overall crypto market, like Bitcoin and Ethereum, are down 50 percent.
MS. SASSOON: Why would that be bad for Alameda?
CAROLINE ELLISON: Because Alameda had long positions in crypto.
MS. SASSOON: And when you say long positions, what does that mean in simple terms?
CAROLINE ELLISON: That means we owned a lot of cryptocurrency.
MS. SASSOON: The next item on this list is 2, "Our venture investments down 100 percent." What is that referring to?
CAROLINE ELLISON: So that's referring to investments that we made in early-stage companies or projects, and it's saying that those had gone down a hundred percent, meaning that they're worth zero.
MR. COHEN: I apologize. Did we have a date for when this document was created?
MS. SASSOON: Yes, I believe——
JUDGE KAPLAN: We did.
MR. COHEN: Thank you.
JUDGE KAPLAN: Summer or fall of 2021.
MR. COHEN: Thank you, your Honor.
MS. SASSOON: 2021, yeah.
BY MS. SASSOON:
MS. SASSOON: How could it be that your venture investments would go down a hundred percent to zero?
CAROLINE ELLISON: A lot of these investments were quite speculative, so if the company that we invested in went under or didn't work out for some reason, then it could end up being worth zero.
MS. SASSOON: And is that something that you discussed with the defendant could happen, that your investments would go down to zero?
CAROLINE ELLISON: Yeah.
MS. SASSOON: The next item says, "FTT, SOL, Serum down 75 percent." So first, just remind us, FTT, SOL, Serum, what are those?
CAROLINE ELLISON: FTT was the exchange token of FTX created by Sam; Serum was the exchange token of a DFI exchange that was also created by Alameda, and then Solana was the——a token that wasn't created by us but that Alameda owned a lot of and that Sam promoted.
MS. SASSOON: So are these all Sam coins that were on Alameda's balance sheet?
CAROLINE ELLISON: Yeah.
MS. SASSOON: And these Sam coins going down 75 percent, what does that refer to?
CAROLINE ELLISON: That means that their price is down 75 percent so they're only worth one quarter of what they used to be.
MS. SASSOON: And is that something you discussed with the defendant could happen?
CAROLINE ELLISON: Yeah.
MS. SASSOON: And how could these coins lose so much value, going down 75 percent?
CAROLINE ELLISON: I mean, they were very volatile, meaning that they moved up and down a lot, and for coins like FTT, you know, initially it was worth 10 cents and then it was a dollar and then it was $50; it seemed totally plausible it could go back down to something like $10.
MS. SASSOON: No. 4, "Stocks down 25 percent, growth tech stocks down 50 percent," what's that referring to?
CAROLINE ELLISON: That refers to like equities.
MS. SASSOON: The traditional stock?
CAROLINE ELLISON: Traditional stock, not cryptocurrency.
MS. SASSOON: The fifth item says "Genesis, etc., tighten up on their requirements from us, potentially restricting use of FTT, etc. as collateral somehow. I don't know how exactly." What is this referring to?
CAROLINE ELLISON: So at the time we were borrowing billions of dollars from Genesis, using FTT as collateral for these loans, so if they had some kind of restriction on the amount of FTT they were willing to accept as collateral, then we would no longer be able to borrow so much money from them.
MS. SASSOON: What, if anything, did you discuss regarding restricting using FTT as collateral?
CAROLINE ELLISON: I don't recall if we discussed this explicitly, but, I mean, it made sense to me that if FTT was down a lot, they might be less willing to accept it as collateral.
MS. SASSOON: So I want to go to item No. 8, which says, "We can't easily raise funds by equity because of bad FTX news. Maybe regulatory." Around this time what was FTX's rough equity value?
CAROLINE ELLISON: I think it was in the ballpark of $20 billion.
MS. SASSOON: And what does that refer to, the equity value of FTX?
CAROLINE ELLISON: That means that when FTX was selling stock, the stock was priced such that the value of all of the stock of FTX was worth $20 billion.
MS. SASSOON: So this was what investors in FTX had valued the company at?
CAROLINE ELLISON: Yes, that's right.
MS. SASSOON: And what does this scenario that the defendant sent to you suggest about what might happen to FTX equity in a bad market scenario?
CAROLINE ELLISON: It suggests that FTX might not be able to sell any more equity so that it might be, you know, almost effectively worthless.
MS. SASSOON: At the bottom here it says "10th percentile scenario." What is that?
CAROLINE ELLISON: That means that he expected something this bad or worse to happen about 10 percent of the time.
MS. SASSOON: And you said "he." So who wrote "10th percentile scenario"?
CAROLINE ELLISON: That was Sam.
MS. SASSOON: So the defendant had quantified these eight things happening as a probability of 10 percent?
MR. COHEN: Objection.
JUDGE KAPLAN: Overruled.
CAROLINE ELLISON: Yeah.
MS. SASSOON: A 10th percentile scenario, did you take that seriously as a potential risk to Alameda?
CAROLINE ELLISON: Yeah, definitely. 10 percent is something that could plausibly happen in trading. 10th percentile scenarios happen every day.
MS. SASSOON: And in what context was the defendant asking you to analyze the effect on Alameda in this 10th percentile scenario?
CAROLINE ELLISON: He said that he was thinking of making $3 billion more of venture investments and wanted to know how that would affect Alameda's finances in this type of scenario.
MS. SASSOON: We can take this down.
MS. SASSOON: What other steps, if any, did you take to analyze the risks of making several billion dollars more in investments in late 2021?
CAROLINE ELLISON: I made a spreadsheet to analyze the risks.
MS. SASSOON: And what does the analysis in your spreadsheet show?
CAROLINE ELLISON: It showed that at a high level, making $3 billion more of venture investments and funding that with open-term loans would put Alameda in a significantly riskier position and make it much less likely or almost impossible that we would be able to pay off our loans if all of our loans were called at once.
MS. SASSOON: And in the scenario where Alameda might not be able to pay off its loans, what were the implications of that to FTX, if any?
CAROLINE ELLISON: Yeah, that would also be a bad scenario for FTX because Alameda had this line of credit on FTX, it was borrowing some funds from FTX, so FTX might lose money in this scenario; it would also just be a bad sort of public relations event for FTX; it might shake confidence in FTX.
MS. SASSOON: And just to be clear, why were you conducting this analysis? Who told you to do it?
CAROLINE ELLISON: Sam did.
MS. SASSOON: Did you share your conclusions with the defendant?
CAROLINE ELLISON: Yeah, I showed him the spreadsheet and we talked about it.
MS. SASSOON: And what was his overall reaction to the conclusions you just described?
CAROLINE ELLISON: He suggested that I should try to move some of our loans to fixed term but that overall he still wanted to go ahead with the venture investments.
MS. SASSOON: When you say move your loans to fixed term, what do you mean by that?
CAROLINE ELLISON: What I mean was that our loans at the time were mostly open term, meaning that lenders could call them at any time. He wanted us to change them to fixed term, meaning that, you know, we didn't have to pay them back for at least three months or six months, something like that.
MS. SASSOON: But apart from that, what did he say about an additional $3 billion of investments?
CAROLINE ELLISON: He said that he wanted to do it. He thought it was high expected value.
MS. SASSOON: Did the defendant dispute the risks that you just outlined?
CAROLINE ELLISON: No, not that I recall.
MS. SASSOON: In assessing the risks of taking on more loans, or making billions of dollars more in investments, what did you and the defendant discuss, if anything, about how Alameda would repay its third-party loans if Alameda's lenders asked for their money back?
CAROLINE ELLISON: We used the assumption that Alameda would take FTX customer funds, if they were available, to repay our loans.
MR. COHEN: Move to strike.
JUDGE KAPLAN: Is this something that he said to you?
CAROLINE ELLISON: I don't recall if he said it to me. It was the assumption that was——that I used in the spreadsheet, and then we both discussed the analysis in the spreadsheet.
JUDGE KAPLAN: Answer stricken. The jury will disregard it.
BY MS. SASSOON:
MS. SASSOON: In the analysis that you conducted of the risks associated with additional investments, what did you assume for purposes of your analysis about how Alameda would repay its lenders?
CAROLINE ELLISON: I assumed that we would use FTX customer funds, if they were available and if we were out of other money to repay our lenders with.
MS. SASSOON: And was that assumption laid out in your spreadsheet analysis?
CAROLINE ELLISON: Yeah.
MS. SASSOON: And is that the spreadsheet you said you reviewed with the defendant?
CAROLINE ELLISON: Yes.
MS. SASSOON: And after which reviewing he said he wanted to make additional investments.
CAROLINE ELLISON: That's right.
MS. SASSOON: Why did you view FTX customer funds as something Alameda could use to repay its loans?
CAROLINE ELLISON: Because it was something we had used in the past for, you know, various small cases, for larger cases, such as the Binance buyback, and it was the only available large source of capital I could think of if all of the rest of our loans were being called.
MS. SASSOON: At this time the government offers Government Exhibit 2003, which is a stipulation between the parties, as well as Government Exhibit 36, which the parties have stipulated is a document called NAV Minus Sam Coins dated September 27, 2021.
MR. COHEN: No objection, your Honor.
JUDGE KAPLAN: Yes. I appreciate that.
They're received.
(Government's Exhibits 2003 and 36 received in evidence)
JUDGE KAPLAN: But am I looking at Government Exhibit 36?
MS. SASSOON: Mr. Bianco, can you please pull that up for the judge and the witness.
JUDGE KAPLAN: Well, I'm looking at something but it isn't marked.
MS. SASSOON: It's in Excel and so it doesn't have an exhibit sticker on it.
JUDGE KAPLAN: We've got to fix that problem.
MS. SASSOON: Understood.
JUDGE KAPLAN: We can't send this computer screen where it may have to go some day.
MS. SASSOON: Understood, your Honor.
JUDGE KAPLAN: All right. And we'll get that fixed today, please.
MS. SASSOON: Yes.
JUDGE KAPLAN: 2003 and 36 are both received.
MS. SASSOON: Thank you.
Mr. Bianco, can you please publish Government Exhibit 36, NAV Minus Sam Coins, for the jury.
BY MS. SASSOON:
MS. SASSOON: Ms. Ellison, do you recognize this?
CAROLINE ELLISON: Yes, I do.
MS. SASSOON: And what is this?
CAROLINE ELLISON: This is a spreadsheet that I made in the fall of 2021 because Sam asked me to make it.
MS. SASSOON: And is this the first tab of that spreadsheet?
CAROLINE ELLISON: Yes, that's right.
MS. SASSOON: And what——there are a lot of numbers here, but at a high level, what were you analyzing here?
CAROLINE ELLISON: I was analyzing Alameda's NAV, or net asset value, meaning our assets minus our liabilities, and then I was subtracting the value of the Sam coins we owned, so coins like FTT, SOL, and Serum.
MS. SASSOON: If you were calculating Alameda's assets and liabilities, why would you exclude Sam coins, which were one of Alameda's assets?
CAROLINE ELLISON: I mean, we didn't exclude them in all of our analyses, but Sam physically asked me to exclude them in this one. I don't recall if he specified why.
MS. SASSOON: What was your understanding of why?
CAROLINE ELLISON: I thought it was because those coins weren't very liquid, and so if we were talking about making large investments, he wanted to know what liquid assets we had available.
MS. SASSOON: And what was the rough value of Alameda's Sam coins on paper in late 2021?
CAROLINE ELLISON: It was maybe in the ballpark of $10 billion.
MS. SASSOON: And you kept that off the spreadsheet.
CAROLINE ELLISON: That's right.
MS. SASSOON: Why didn't you consider that $10 billion——
JUDGE KAPLAN: Excuse me. Let me just clarify. When you say "on paper," valued how?
CAROLINE ELLISON: The values that we would put on our balance sheet, which were using the current market prices for those coins.
JUDGE KAPLAN: Mark to market.
CAROLINE ELLISON: Mark to market, that's right.
JUDGE KAPLAN: Thank you.
BY MS. SASSOON:
MS. SASSOON: And why, in assessing whether Alameda should make additional venture investments, would you exclude $10 billion of assets?
CAROLINE ELLISON: Because they weren't assets that we could sell very easily and they were assets that might go down a lot if the market went down.
MS. SASSOON: And in connection with creating the spreadsheet, what, if anything, did you discuss with the defendant about the relevance of FTT and other Sam coins to Alameda's actual financial health?
CAROLINE ELLISON: He asked if I could create the spreadsheet so that he could analyze whether it made sense to make more venture investments, and he asked me to exclude coins like FTT. I don't recall anything else specific.
MS. SASSOON: The spreadsheet at the top refers to Q1, Q2, July to August, September. What year is this referring to?
CAROLINE ELLISON: This is from 2021.
MS. SASSOON: And where on this spreadsheet does it reflect your conclusion about what Alameda's net asset value was without Sam coins?
CAROLINE ELLISON: As in cell E18.
MS. SASSOON: So cell E18 says negative 2700. What does that number represent?
CAROLINE ELLISON: Yeah, this is in millions. So that was saying I believed our current net asset value minus Sam coins to be about negative 2.7 billion.
MS. SASSOON: There's another column here, H, that says December to February. Do you recall what that column is about?
CAROLINE ELLISON: Yeah. I recall adding that column at a later date after I initially made the spreadsheet.
MS. SASSOON: So when you analyzed Alameda's balances and saw that it had a net asset value of negative 2.7 billion if you excluded Sam coins, how did that affect your view of making more illiquid investments?
CAROLINE ELLISON: I thought it made it riskier.
MS. SASSOON: Why?
CAROLINE ELLISON: Because if we used things like US dollars to make these further venture investments, then our liquid assets would go down even further.
MS. SASSOON: And what would be the implications of your liquid assets going down even further?
CAROLINE ELLISON: It would mean that we would lose even more money in a market crash and we would be unable to repay our loans if all of our loans were called.
MS. SASSOON: Did you share this analysis with the defendant?
CAROLINE ELLISON: Yes, I did.
MS. SASSOON: What was his view after reviewing this tab of the spreadsheet?
CAROLINE ELLISON: He said he still thought it was a good idea to make the investments.
MS. SASSOON: The next tab of this spreadsheet is called Questions. And before we take a closer look, when you wrote Questions, what does that refer to with respect to this tab?
CAROLINE ELLISON: That refers to questions I had for Sam about this investment strategy.
MS. SASSOON: And why did you do further analysis after you created the first tab of this spreadsheet that we just looked at?
CAROLINE ELLISON: Because I wanted to consider other options besides the options that——the option that Sam was suggesting and see if there are ways to reduce the risk of these investments.
MS. SASSOON: Did you share your analysis on this tab with the defendant?
CAROLINE ELLISON: Yeah.
MS. SASSOON: Did you discuss it with him?
CAROLINE ELLISON: Yeah.
MS. SASSOON: So let's take a closer look here. And before we do, for the analysis that you did here about the risks of additional investments, did you account for FTX customer funds in that analysis?
CAROLINE ELLISON: Yes, I did.
MS. SASSOON: And at a general level how did you include that in your analysis?
CAROLINE ELLISON: I included the amount of funds that customers currently had deposited on FTX, and I assumed that in the events that our loans got called that we could use those funds to repay our loans.
MS. SASSOON: So let's take a closer look, piece by piece.
MS. SASSOON: Mr. Bianco, if you could expand columns F and G from rows 2 to 7 of the "questions" tab.
MS. SASSOON: So this says, "Main Question: Should we (1) raise more equity, (2) invest less in ventures, (3) sell more FTT, (4) get shorter overall, (5) other stuff?" Who are you posing these questions to?
CAROLINE ELLISON: To Sam.
MS. SASSOON: And what is the meaning of this list of questions?
CAROLINE ELLISON: These were all ways that we could reduce our risk.
MS. SASSOON: And are these alternatives to taking out more loans for investments?
CAROLINE ELLISON: Yeah.
MS. SASSOON: Does the remainder of the spreadsheet analyze these questions?
CAROLINE ELLISON: Yes, it does.
MS. SASSOON: So let's look at the first question, which is "raise more equity."
MS. SASSOON: Mr. Bianco, can you expand columns A through C from rows 1 to 7.
MS. SASSOON: So this says, "What is the negative EV of raising equity?" Can you explain what that question means.
CAROLINE ELLISON: So Sam said that he didn't want to sell more equity in FTX at the time because he believed that if we waited, we could sell equity later at a higher valuation. So this was trying to quantify, you know, how much more we would make if we waited to sell FTX equity.
MS. SASSOON: And what was the conclusion, in your analysis of this question?
CAROLINE ELLISON: Based on the——Sam——what Sam told me, I estimated it at a cost of $1 billion.
MS. SASSOON: Meaning if you raise money now instead of later, you'd be giving up a billion dollars?
CAROLINE ELLISON: That's right.
MS. SASSOON: And so let's zoom out and look at your second question.
MS. SASSOON: Mr. Bianco, this would be columns A through D, rows 9 through 13.
MS. SASSOON: And this asked the question, "What is the positive EV of venture investments?" So what are you analyzing here?
CAROLINE ELLISON: That's the positive, what is the expected value from making venture investments, like how much do we think these investments are worth.
MS. SASSOON: Is the analysis you did here complete?
MS. SASSOON: Why not?
CAROLINE ELLISON: I didn't know very much about our venture investments, so I got a few numbers from Sam but didn't feel like I had a full picture of them.
MS. SASSOON: And so these numbers——600, 300——what's that meant to represent?
CAROLINE ELLISON: That's how much I think he thought these investments would be worth, so 600 million and 300 million.
MS. SASSOON: And are these some of the investments the defendant wanted to make with the 3 billion additional dollars?
CAROLINE ELLISON: That's right.
MS. SASSOON: Let's zoom out. The third question on your list to the defendant is "Sell more FTT." Did you analyze whether that could be a source of additional capital for Alameda?
CAROLINE ELLISON: Yeah, I did.
MS. SASSOON: So Mr. Bianco, if you could now bring up columns A through C, rows 111 through 114.
This says, "What are the effects of selling FTT? Sell 1B," and there's an arrow, "negative 50 percent." Is that 3 billion less of Genesis borrows? A. Yes, that's right. So this is saying that I thought that if we sold a billion dollars of FTT, it would go down something like 50 percent and then we would have $3 billion less of loans from Genesis because the value of our FTT collateral would go down.
MS. SASSOON: Just to break that down, why did you think FTT would go down in value by 50 percent if you sold a billion dollars' worth of FTT?
CAROLINE ELLISON: Because there weren't that many buyers outside of Alameda and it wasn't a coin that had a ton of trading.
MS. SASSOON: And if you sold that amount of FTT and the value went down, why would that result in less borrowing from Genesis?
CAROLINE ELLISON: Because our borrows from Genesis at the time were mostly collateralized with FTT and so we had to maintain a certain value of collateral compared to the value of our loans, so if our collateral went down, we would have fewer loans.
MS. SASSOON: Mr. Bianco, let's zoom out again, and if we could zoom in on the question in row 18.
MS. SASSOON: This says, "What is the negative EV from downside risks of funding with loan?" Does this go back to kind of the core original question in your analysis?
CAROLINE ELLISON: Yeah. This is asking how much risk are we taking on by funding these venture investments with these open-term loans.
MS. SASSOON: And at a high level, what did you conclude were the risks of funding billions more of investments with loans?
CAROLINE ELLISON: I concluded that it would significantly increase the risk that we would be unable to meet loan recalls.
MS. SASSOON: Mr. Bianco, let's take a look at some of this analysis, and if you could expand rows 18 through 29, columns A through E.
MS. SASSOON: So this list, "Current Liquid Assets and Loans," whose liquid assets and loans is this listing?
CAROLINE ELLISON: Alameda's.
MS. SASSOON: And what is meant by current?
CAROLINE ELLISON: That meant in the current scenario, without assuming any market moves or without assuming any further investments.
MS. SASSOON: And why are you calculating Alameda's liquid assets and loans?
CAROLINE ELLISON: Because I wanted to calculate our financial health in a baseline scenario.
MS. SASSOON: And where it says Liquid Assets, what's a liquid asset?
CAROLINE ELLISON: That means an asset that can easily be sold for something else that has a lot of active trading in it.
MS. SASSOON: And according to this spreadsheet, what were Alameda's liquid assets at this time?
CAROLINE ELLISON: At the time it was $8 billion.
MS. SASSOON: And what was the rough size of Alameda's loans at that point?
CAROLINE ELLISON: $9.4 billion.
MS. SASSOON: And when we're talking about loans here, are these loans from third parties?
CAROLINE ELLISON: Yes, that's right.
MS. SASSOON: And is that broken down beneath it?
CAROLINE ELLISON: Yeah, that's broken down into Genesis, Bitcoin, Genesis US dollars, and other sources.
MS. SASSOON: I want to direct your attention to row 27, where it says "FTX borrows," followed by "USD 3" and "crypto 4." Where you wrote "FTX borrows," what does that refer to?
CAROLINE ELLISON: That referred to the amount of FTX customer deposits that were currently on the exchange and that were available for Alameda to borrow.
MS. SASSOON: And just to be clear, the numbers 3 and 4, what do those signify?
CAROLINE ELLISON: That means there was 3 billion——about $3 billion of USD and about $4 billion of crypto.
MS. SASSOON: So by what means were you assuming that Alameda would make use of this $7 billion of FTX customer funds?
CAROLINE ELLISON: I was assuming that we could use our line of credit to borrow some of these funds if we needed to.
MS. SASSOON: How, if at all, did these numbers account for the customer money Alameda was already using that came in the form of customer fiat or dollar deposits?
MR. COHEN: Objection.
JUDGE KAPLAN: Overruled.
CAROLINE ELLISON: I don't recall exactly how they accounted for that, like whether that's included in the current totals or not.
MS. SASSOON: Why did you assume that Alameda would use FTX customer money through its line of credit to repay loans?
CAROLINE ELLISON: Because we had used FTX——our FTX line of credit for other large funding needs in the past, large and small funding needs; and from, you know, the founding of FTX, Sam had talked about FTX being a good source of capital for Alameda.
MS. SASSOON: You testified that you shared your analysis with the defendant. Did the defendant at any time question this assumption in your spreadsheet?
MR. COHEN: Objection.
JUDGE KAPLAN: What's the objection?
MR. COHEN: Builds a conclusion into the question. It's leading.
JUDGE KAPLAN: Overruled.
CAROLINE ELLISON: No. He never questioned it.
MS. SASSOON: So Mr. Bianco, can you please display this same tab, lines 50 through 65.
MS. SASSOON: At the top here it says, "How does this change with another 3B——" is that billion?
CAROLINE ELLISON: Yeah.
MS. SASSOON: "How does this change with another 3 billion of venture investments?" What question are you posing here?
CAROLINE ELLISON: I'm looking at how our balances change if Sam makes the $3 billion of venture investments that he was talking about making.
MS. SASSOON: So Mr. Bianco, if you could display this alongside the original calculation of Alameda's current assets.
MS. SASSOON: So on the left-hand side here we have Alameda's current liquid assets and loans, on the right-hand side——
MS. SASSOON: Mr. Bianco, can you please go back to them side by side.
MS. SASSOON: So on the right-hand side here we have the scenario of $3 billion of additional venture investments. How are the numbers different in that scenario?
CAROLINE ELLISON: The only difference is that our liquid assets go down by $3 billion.
MS. SASSOON: Mr. Bianco, if you could highlight row 21 and 53.
MS. SASSOON: And so what effect would an additional $3 billion of investments have on Alameda's overall ability to repay $9.4 billion in loans, if necessary?
CAROLINE ELLISON: It would make it significantly more difficult.
MS. SASSOON: And why is that?
CAROLINE ELLISON: Because the——the available assets that we had to repay the loans would go down from 8 billion to 5 billion.
MS. SASSOON: So let's take a look at another part of this spreadsheet.
MS. SASSOON: And I know it's long, but Mr. Bianco, if you could now display columns A through C, row 30 to 32.
MS. SASSOON: And so here you wrote, "Very bad FTX news, market down 20 percent, FTT, Serum down 50 percent, we buy 300 million FTT, 100 million Serum, 2 billion in Deltas." What are you analyzing here?
CAROLINE ELLISON: So that's a scenario that Sam suggested if there was very bad news about FTX, maybe the market would be down around 20 percent, FTT and Serum would be down 50 percent, and we'd buy some of all these coins as they went down.
MS. SASSOON: So we looked at another document a little bit ago with the 10th percentile scenario. How does what you wrote here compare to that 10th percentile scenario the defendant sent you?
CAROLINE ELLISON: This is similar, though a bit less bad.
MS. SASSOON: And why in this scenario are you assuming that you would be buying large quantities of FTT and Serum?
CAROLINE ELLISON: Because as market makers, our models were generally set up to buy FTT and Serum as they went down.
MS. SASSOON: And why?
CAROLINE ELLISON: Because we wanted to support them, provide liquidity.
MS. SASSOON: When you say support them, do you mean keep the price up?
CAROLINE ELLISON: Yeah, that was one of the reasons.
MS. SASSOON: Did you compare in the spreadsheet what would happen to Alameda's risk profile in this bad scenario if Alameda invested another $3 billion?
CAROLINE ELLISON: Yeah, I did.
MS. SASSOON: Mr. Bianco, can you please display two parts of the spreadsheet, columns A through D, row 30 to 45 and row 62 to 77.
MS. SASSOON: What is being compared here, Ms. Ellison?
CAROLINE ELLISON: So this is our assets and liabilities, assuming this bad market scenario, both in the case where we made no further investments and the case where we made this $3 billion of investments.
MS. SASSOON: So that the scenario of an additional $3 billion of investments, is that on the right-hand side?
CAROLINE ELLISON: That's right.
MS. SASSOON: Let's look at the left-hand side first, which is the current scenario.
If Alameda maintained its current assets, what did you estimate would be Alameda's liquid assets in the event of a market downturn?
CAROLINE ELLISON: It would go down to $4.8 billion.
MS. SASSOON: And how would that compare to Alameda's loans?
CAROLINE ELLISON: Its loans would be $8 billion.
MS. SASSOON: I believe we looked before and Alameda had loans of 9.4 billion. Why has it gone down to 8 billion here?
CAROLINE ELLISON: Because some of our loans were in cryptocurrency, so the value of those loans would go down if the market went down.
MS. SASSOON: Likewise here, if you look at FTX borrows in row 40 and 41, the amount of USD and crypto that you wrote were available is 1.5 billion and 1.5 billion. Why have those numbers gone down?
CAROLINE ELLISON: I was assuming that in a bad market scenario that customers would withdraw some money from FTX.
MS. SASSOON: And what would that mean about what was available for Alameda?
CAROLINE ELLISON: It would mean there was less available for Alameda to borrow.
MS. SASSOON: Looking beneath that, where it says "Assets, 7.8 billion," what is that referring to?
CAROLINE ELLISON: So that's our liquid assets plus the FTX borrows. That's the total liquid assets that we would have access to in this case.
MS. SASSOON: So is that assuming that FTX customer money would be available to Alameda as an asset?
CAROLINE ELLISON: That's right.
MS. SASSOON: Beneath that where it says "Liabilities, 8 billion," what does that refer to?
CAROLINE ELLISON: That refers to our total loans in this bad market scenario.
MS. SASSOON: And beneath that, where it says "Genesis, 4.8 billion," what is that?
CAROLINE ELLISON: That's specifically the loans that we were taking out from Genesis.
MS. SASSOON: So is that a subset of the liabilities?
CAROLINE ELLISON: That's right.
MS. SASSOON: Let's look at the right side.
What did your analysis show about how $3 billion of additional investments would affect Alameda's total liquid assets?
CAROLINE ELLISON: Go down to 1.8 billion.
MS. SASSOON: So that's $3 billion less?
CAROLINE ELLISON: Yeah.
MS. SASSOON: And how does this affect, at the bottom, the total assets that would be on hand to repay loans?
CAROLINE ELLISON: We would only have $4.8 billion of assets on hand to repay loans, including the FTX customer funds that we had access to.
MS. SASSOON: So that $4.8 billion number is adding the liquid assets with the customer funds?
CAROLINE ELLISON: Yes, that's right.
MS. SASSOON: Did you use these numbers to make any predictions about Alameda's ability to repay its loans in the event of a market downturn?
CAROLINE ELLISON: Yeah, I did.
MS. SASSOON: Mr. Bianco, can you please bring up columns E through G, rows 21 through 25 and row 31 through 34.
MS. SASSOON: You'll see that there are two new boxes at the bottom. And so let's focus on the left-hand side, the bottom rows.
Does this pertain to a scenario where Alameda did not make any additional investments?
CAROLINE ELLISON: Yes, that's right.
MS. SASSOON: And looking at these four bottom rows——can we zoom in on that please——what did you conclude about the probability that Alameda could repay its loans if they were recalled in a market downturn scenario?
CAROLINE ELLISON: I concluded that there was a 30 percent chance that we would not be able to meet our loan recalls, so there was a 70 percent chance that we would be able to.
MS. SASSOON: And just to be clear, where it says "P v bad FTX news 10 percent," what's "P v bad FTX news"?
CAROLINE ELLISON: That's the probability of a scenario like this with very bad FTX news.
MS. SASSOON: Where did you put that probability?
CAROLINE ELLISON: I said it was about 10 percent.
MS. SASSOON: And the next line, "P Genesis freaks out immediately, 15 percent," what does "P Genesis freaks out immediately" mean?
CAROLINE ELLISON: That's the probability that in this bad market scenario Genesis would recall all of our loans.
MS. SASSOON: And what is "P we can't meet that" referring to?
CAROLINE ELLISON: It means the probability that we're unable to meet those loan payments.
MS. SASSOON: And so just to be clear, this is your estimate that there was a 30 percent chance of not repaying loans under the current situation.
MR. COHEN: Objection.
JUDGE KAPLAN: Sustained in that form, certainly.
MS. SASSOON: Okay. We've been talking about a bad market scenario. In what scenario are you concluding here that there's a 30 percent chance of not being able to repay your loans?
CAROLINE ELLISON: In this scenario; in the scenario where there's a bad market scenario but we haven't made any additional investments.
MS. SASSOON: And the 30 percent chance of not being able to repay loans, was that concerning to you?
CAROLINE ELLISON: Yeah, that was somewhat concerning.
MS. SASSOON: Let's take a look at your calculations in the event that Alameda made an additional $3 billion of venture investments. Is that reflected in this bottom box on the right?
CAROLINE ELLISON: Yes, that's right.
MS. SASSOON: And can you walk us through your analysis of what would happen in a market downturn if Alameda made an additional $3 billion of venture investments.
CAROLINE ELLISON: Yeah. So the probability of very bad FTX news doesn't change. The probability that Genesis recalls our loans goes up from 15 percent to 25 percent; and the probability that we're unable to make those loan payments goes up from 30 percent to 100 percent.
MS. SASSOON: And so what is a hundred percent probability of not being able to repay your loans if recalled, what does that mean?
CAROLINE ELLISON: That means if we made this $3 billion of investments and there was bad market news leading to a significant market downturn and our loans got called, that there was no way we would be able to make the payments.
MS. SASSOON: And when you concluded there was no way to be able to make the payments, was that even accounting for using FTX customer money?
MR. COHEN: Objection.
JUDGE KAPLAN: Sustained as to form.
MS. SASSOON: When you concluded that there was a hundred percent chance of not being able to repay your loans, what, if any, assumptions did you make about whether Alameda would be using customer funds?
MR. COHEN: Same objection.
JUDGE KAPLAN: Overruled.
CAROLINE ELLISON: I assumed that we would be able to borrow FTX customer funds to make these repayments.
MS. SASSOON: And you still would not be able to repay.
CAROLINE ELLISON: That's right.
MS. SASSOON: And in this scenario where Alameda would be unable to repay its third-party lenders, what were the implications of that about any money available to repay the money that Alameda owed FTX customers at this time?
CAROLINE ELLISON: Yeah. If we used FTX customer money to repay lenders, then we would have no source to repay the FTX customer money we had borrowed unless we were able to find new loans, or, you know, make a lot of money or something.
MS. SASSOON: Do you recall how you shared this spreadsheet with the defendant?
CAROLINE ELLISON: No. I don't recall if I sent it over Signal or if we just like looked at it on my computer and discussed it.
MS. SASSOON: Are those two different ways that you sometimes reviewed documents together?
CAROLINE ELLISON: Yeah.
MS. SASSOON: So sometimes communicating over Signal and sometimes in person?
CAROLINE ELLISON: That's right.
MS. SASSOON: When you shared this spreadsheet analysis with the defendant, did he dispute any of your calculations?
CAROLINE ELLISON: The only feedback that he gave was he said that I should redo the calculations assuming that Alameda was able to convert a lot of its loans to fixed term.
MS. SASSOON: Just to be clear, did he dispute your calculation of the risks associated with the scenarios you mapped out here?
MR. COHEN: Objection.
JUDGE KAPLAN: Sustained.
MS. SASSOON: What, if any, feedback did he give on the calculations you had made with respect to a scenario with open-term loans and $3 billion of venture investments?
CAROLINE ELLISON: He didn't raise any objections to the calculations I had made in that scenario.
MS. SASSOON: So when the defendant told you to consider what would happen if Alameda changed to fixed-term loans, did you conduct any additional analysis?
CAROLINE ELLISON: Yes, I did. I added that to the spreadsheet.
MS. SASSOON: And is that reflected in this version of the spreadsheet?
CAROLINE ELLISON: Yeah.
MS. SASSOON: And Mr. Bianco, so can you please bring up columns A through B, this time with lines 62 through 77, side by side with lines 93 through 108.
MS. SASSOON: So now just to be clear, what scenario do we have on the left-hand side?
CAROLINE ELLISON: The left-hand side is the scenario of bad market conditions and $3 billion of venture investments have been made.
MS. SASSOON: And so we've just looked at that; is that right?
CAROLINE ELLISON: Yeah.
MS. SASSOON: And what do we have on the right-hand side now?
CAROLINE ELLISON: The right-hand side is the same thing but assuming that we're able to convert our loans with Genesis to fixed term.
MS. SASSOON: So the numbers here look the same except for the liabilities and the Genesis row at the bottom. Why is that?
CAROLINE ELLISON: Because the liabilities and the Genesis rows are assuming that only a fraction of the loans are able to be recalled so that those lines are listing the loans that are able to be recalled.
MS. SASSOON: Meaning if some were fixed term, they couldn't be recalled on a moment's notice.
CAROLINE ELLISON: Yeah, not immediately.
MS. SASSOON: And did you analyze the probability of Alameda being able to repay its loans under that scenario?
CAROLINE ELLISON: Yes, I did.
MS. SASSOON: So Mr. Bianco, can you please bring up columns E through G, rows 31 through 34 and rows 39 through 42.
MS. SASSOON: So on the left-hand side, these probabilities for $3 billion more ventures, is that what we previously looked at?
CAROLINE ELLISON: Yes, that's right.
MS. SASSOON: And looking at the right-hand side, what did you conclude was the probability you'd be unable to repay your loans with a new loan structure in a bad market scenario?
CAROLINE ELLISON: I estimated that it would go back down to 30 percent.
MS. SASSOON: And 30 percent, what was your view of that level of risk?
CAROLINE ELLISON: I mean, it was still a somewhat concerning level of risk but less so, especially given that it was sort of risk conditional on these two previous assumptions.
MS. SASSOON: Were you in fact able to change all of Alameda's loans to fixed-term loans?
CAROLINE ELLISON: No. We were able to change some, but the majority remained open-term loans.
MS. SASSOON: Did you share that information with the defendant?
CAROLINE ELLISON: Yeah, I regularly updated him on the progress of our——of getting loans and changing loan terms.
MS. SASSOON: So after you prepared this spreadsheet and shared it with the defendant, what did he do?
CAROLINE ELLISON: He directed me to try to change more of our loans to fixed term, and he said that he wanted to go ahead with billions of dollars of venture investments.
MS. SASSOON: And after the defendant directed you to try to change the loan terms and stated that he still wanted to make these investments, what did you understand the plan was if Genesis recalled its loans?
CAROLINE ELLISON: I understood the plan was as was laid out in the spreadsheet, to use our liquid assets to try to repay if we could and to borrow from FTX if we were out of other assets.
MS. SASSOON: Pursuant to Government Exhibit 2001, the government offers Government Exhibit 837.
And Mr. Bianco, if you could pull it up for the Court, please.
MR. COHEN: No objection, your Honor.
JUDGE KAPLAN: 837 is received.
(Government's Exhibit 837 received in evidence)
MS. SASSOON: Mr. Bianco, please publish this exhibit for the jury.
BY MS. SASSOON:
MS. SASSOON: Ms. Ellison, do you recognize the Twitter account at SBF_FTX?
CAROLINE ELLISON: Yes, that was Sam's Twitter.
MS. SASSOON: What's the date of this tweet?
CAROLINE ELLISON: January 14, 2022.
MS. SASSOON: And at the top here it says, "First, we're launching a $2 billion venture fund, FTX Ventures. As a founder, it's important to support other founders creating great companies. Hopefully this will allow us to do that a lot more."
How, if at all, does this tweet relate to the analysis we were just looking at in your NAV Minus Sam Coin spreadsheet?
CAROLINE ELLISON: This is part of the——Sam's general push to do more venture investments.
MS. SASSOON: And what's your understanding whether the defendant in fact did billion dollars more of venture investments?
CAROLINE ELLISON: Yes, he did.
MS. SASSOON: And was this after you tried to change all the loans to fixed-term loans?
CAROLINE ELLISON: That's right.
MS. SASSOON: And had you informed him that that was unsuccessful?
CAROLINE ELLISON: Yeah.
MS. SASSOON: What was your understanding of where the $2 billion of additional money for this venture fund was coming from?
CAROLINE ELLISON: It was coming from Alameda.
MS. SASSOON: How did you know that?
CAROLINE ELLISON: I knew that because I knew that when there was a venture investment, people would, you know, post in Slack asking someone from Alameda to send money for the investment, things like that.
MS. SASSOON: If the money was coming from Alameda, what, if anything, did the defendant say about why the investment fund was called FTX Ventures?
CAROLINE ELLISON: He said he thought that Alameda's brand was less good and that he wanted to associate himself more with the venture investing but he didn't want his name associated with Alameda's name.
MS. SASSOON: You just testified that you understood that the plan, if loans were recalled from Genesis and others, was to borrow from FTX. What did you mean by borrow from FTX?
CAROLINE ELLISON: What I meant was use the line of credit that I've talked about on FTX.
MS. SASSOON: Meaning whose funds?
CAROLINE ELLISON: Meaning that it was ultimately coming from customer funds.
MS. SASSOON: In 2022 did the defendant buy shares of a company called Robinhood?
CAROLINE ELLISON: Yes, he did.
MS. SASSOON: What is Robinhood?
CAROLINE ELLISON: It's a publicly traded company that has an app where you can buy and sell stock.
MS. SASSOON: Were you aware of what entity paid for the shares in Robinhood?
CAROLINE ELLISON: Yes, it was paid for by Alameda.
MS. SASSOON: And what entity ultimately bought the shares?
CAROLINE ELLISON: Alameda did the initial buying of the shares, but before we reached the point where the buying had to be publicly disclosed, Sam asked for the shares to be moved to a different entity with a different name.
MS. SASSOON: Do you recall the name of that entity?
CAROLINE ELLISON: Yeah, I think it's the Emergent Fidelity Technologies.
MS. SASSOON: What, if anything, did the defendant explain to you about why he moved the shares to another entity other than Alameda?
CAROLINE ELLISON: He said that he wanted to be able to talk about his Robinhood investment but he didn't want his name associated with Alameda.
MS. SASSOON: By mid-2022 what was the rough amount of Alameda's borrowing from third parties like Genesis?
CAROLINE ELLISON: It was in the ballpark of $10 billion.
MS. SASSOON: And what were the loans from Genesis and other third-party lenders being used for?
CAROLINE ELLISON: Some were being used for our general trading, others had been used for these venture investments that we've talked about.
MS. SASSOON: Was Alameda also still borrowing money from FTX?
CAROLINE ELLISON: Yeah. We were borrowing some money.
MS. SASSOON: And did this include through the line of credit?
CAROLINE ELLISON: That's right.
MS. SASSOON: Were you keeping track of that borrowing?
CAROLINE ELLISON: Yeah. Not necessarily carefully, but to some extent.
MS. SASSOON: Mr. Bianco, can you please show the witness Government Exhibit 48A.
MS. SASSOON: Do you recognize this?
CAROLINE ELLISON: Yeah, this is a section from one of the personal to-do list documents.
MS. SASSOON: Meaning you wrote this?
CAROLINE ELLISON: Yes, that's right.
MS. SASSOON: The government offers Government Exhibit 48A.
MR. COHEN: We need a foundation, your Honor.
JUDGE KAPLAN: Yes, you do.
MS. SASSOON: Ms. Ellison, you testified that you wrote this?
CAROLINE ELLISON: Yes, I did.
MS. SASSOON: Around when did you write this?
CAROLINE ELLISON: I think it was in the spring of 2022.
MS. SASSOON: And what are you writing about here?
CAROLINE ELLISON: Those were the funds that Alameda was currently borrowing from FTX through this line of credit.
MS. SASSOON: And did you take these notes in the course of performing your job responsibilities at Alameda?
CAROLINE ELLISON: Yeah.
MS. SASSOON: The government offers Government Exhibit 48A.
MR. COHEN: No objection.
JUDGE KAPLAN: Received.
(Government's Exhibit 48A received in evidence)
MS. SASSOON: Mr. Bianco, can you please publish Government Exhibit 48A.
BY MS. SASSOON:
MS. SASSOON: So just to orient us, is this an excerpt from a longer document?
CAROLINE ELLISON: Yes, it is.
MS. SASSOON: And around when did you write this part of the document?
CAROLINE ELLISON: In spring of 2022.
MS. SASSOON: The first bullet says, "Borrowing from FTX hot wallet," followed by some numbers and letters. Where it says 1B, what does B represent?
CAROLINE ELLISON: Billion.
MS. SASSOON: And where it says, for example, 600M, what does M represent?
CAROLINE ELLISON: Million.
MS. SASSOON: And what are these various acronyms?
CAROLINE ELLISON: Those are various coins and fiat currencies. So SOL is Solana, USD is US dollars.
MS. SASSOON: And what was this list?
CAROLINE ELLISON: This was a list of coins and currencies that Alameda was borrowing from FTX at the time.
MS. SASSOON: It says at the top "Borrowing from FTX hot wallet." Was all this money coming from an FTX hot wallet?
CAROLINE ELLISON: Not necessarily. That was more of a shorthand I used for just borrowing from FTX, but some of these were fiat currencies like US dollars, so that wouldn't have been in a hot wallet; that would have been in a bank.
MS. SASSOON: So for example, where it says 10 billion US dollars, what's that referring to?
CAROLINE ELLISON: That's referring to 10 billion of US dollars fiat currency that Alameda was borrowing.
MS. SASSOON: And was some of that from Alameda's bank account?
CAROLINE ELLISON: Yeah, that's right.
MS. SASSOON: What does this list show about how much crypto Alameda was borrowing from FTX around the time you made this list?
CAROLINE ELLISON: It shows that it was borrowing around $3 billion.
MS. SASSOON: And would that be through the line of credit?
CAROLINE ELLISON: That's right.
MS. SASSOON: Can you describe Alameda's financial situation going into the spring of 2022.
CAROLINE ELLISON: We had a quite positive NAV, net asset value, because we had a lot of these coins like FTT and Solana that were worth a lot, but we were fairly leveraged because we had been——we had a lot of loans and we were using a lot of those loans for investments.
MS. SASSOON: When you say you were fairly leveraged, can you explain what you mean by that.
CAROLINE ELLISON: What I mean is that we were in a fairly risky situation where our, like, total assets were significantly larger than our net assets.
MS. SASSOON: Can you explain what you mean by that.
CAROLINE ELLISON: So total assets is just all of the assets we have; net assets is our assets minus our liabilities.
MS. SASSOON: And so why did that put you in a leveraged situation?
CAROLINE ELLISON: Because that means——I mean, if you're not leveraged, then your assets have to go down a hundred percent for you to lose all of your value, but if you are leveraged, then they can go down less than a hundred percent and you can still lose all of your value, so that's the situation that Alameda was in.
MS. SASSOON: Were you discussing that with the defendant?
CAROLINE ELLISON: Yeah, we were talking about Alameda's balance sheet and our positions.
MS. SASSOON: I'm showing you what's been marked as Government Exhibit 49A.
Do you recognize this?
CAROLINE ELLISON: Yes, this is a——a update document that I wrote about things that had been happening at Alameda and that I sent to Sam.
MS. SASSOON: At this time the government offers Government Exhibit 49A pursuant to stipulation 2003, which the parties have stipulated is a document titled Alameda Updates 5/7, dated May 7, 2022.
JUDGE KAPLAN: Received.
(Government's Exhibit 49A received in evidence)
MR. COHEN: I was about to say no objection.
MS. SASSOON: Mr. Bianco, if you can publish this for the jury.
BY MS. SASSOON:
MS. SASSOON: So who wrote this document, putting aside the comment bubbles that say Sam Bankman-Fried?
CAROLINE ELLISON: I wrote this document.
MS. SASSOON: Why did you write this document?
CAROLINE ELLISON: I somewhat regularly wrote update documents about Alameda both for my own reflection and to send to Sam and get his comments and feedback.
MS. SASSOON: And around when did you write this?
CAROLINE ELLISON: In May of 2022.
MS. SASSOON: And do you see comment bubbles that say Sam Bankman-Fried?
CAROLINE ELLISON: Yes, I do.
MS. SASSOON: How often would he write comments on these update documents that you shared with him?
CAROLINE ELLISON: Pretty often.
MS. SASSOON: Let's turn to page 2, the end of this document. I want to direct your attention to where it says Worries/Questions. What did you mean by Worries/Questions?
CAROLINE ELLISON: Those were either things I was concerned about or questions I wanted Sam's input on.
MS. SASSOON: The last item here says, "Leverage, both actual leverage and presenting on our balance sheet." What did you mean by that in describing actual leverage and how to present it on your balance sheet as a worry?
CAROLINE ELLISON: By actual leverage, I meant that I thought Alameda's financial position was risky and that if the market went down significantly, we would lose a lot of money, and by presenting on our balance sheet, I meant that I was concerned about conveying that information to lenders and having them worry about Alameda's financial health and recall their loans.
MS. SASSOON: And Sam Bankman-Fried wrote a comment on that line. Can you read it.
CAROLINE ELLISON: It says, "Yup, and could also get worse. Do you put Paper Bird/FTX equity on the balance sheet?"
MS. SASSOON: What are Paper Bird and FTX equity?
CAROLINE ELLISON: Paper Bird was an entity that Sam held most of his FTX equity in, and FTX equity being shares in the company FTX.
MS. SASSOON: You wrote a comment, "I don't think so," in response. Why didn't you put Paper Bird and FTX equity on Alameda's balance sheet?
CAROLINE ELLISON: Because Paper Bird was a separate company that wasn't owned by Alameda or part of the Alameda tree, so it wasn't something that our lenders had any recourse to if we failed to pay back our loans.
MS. SASSOON: Explain what you mean when you say your lenders wouldn't have recourse to the Paper Bird/FTX equity.
CAROLINE ELLISON: I meant that if we failed to pay back our loans, our lenders could potentially get some money back in the form of Alameda's assets, but because Paper Bird was a separate entity, it wasn't the one loaning them the money, it shouldn't really affect their assessment of the loans.
MS. SASSOON: The defendant's comment in response to what you wrote about leverage says, "Yup, and could also get worse." In what ways could things get worse?
CAROLINE ELLISON: If the market went down, Alameda would lose money and our——our leverage and our risk would increase.
MS. SASSOON: Did things get worse?
CAROLINE ELLISON: Yes, they did.
MS. SASSOON: Was the possibility of things getting worse something that you and the defendant had analyzed together?
CAROLINE ELLISON: Yeah, it was, like, in the spreadsheet that we looked at earlier.
MS. SASSOON: Your Honor, I see it's just about 4:30. This is a natural break point. I could also continue.
JUDGE KAPLAN: Okay. We will break here.
Members of the jury, please wait in the jury room because Rhonda——whom you all met, the head of our jury department——wants to see you before you go.
See you at 9:30 in the morning. And counsel remain, please.
(Continued on next page)
(Jury not present)
JUDGE KAPLAN: Be seated, folks.
Who are the government's next several witnesses?
MS. SASSOON: So, your Honor, this is by far our longest witness, and I expect that between the direct and cross-examinations, she's certainly going to be on for all of tomorrow. And then after that, we have Christian Drappi, Zac Prince——and we can provide more names tomorrow, your Honor.
JUDGE KAPLAN: Okay. What's the new and revised——of course that assumes a fact as to which there's no evidence yet——estimate of the duration of government's case? When do you expect to rest?
MS. SASSOON: I think we're proceeding on pace and we could rest as early as the fourth week, after your Honor returns from the conference.
JUDGE KAPLAN: 26th, 27th of October?
MS. SASSOON: Yes, your Honor. That's our goal.
JUDGE KAPLAN: And Mr. Cohen, obviously I'm not going to hold you to anything, but what do you anticipate with respect to a defense case, if any?
MR. COHEN: It's very hard to know, your Honor, since we're only through the first week and a day, but I would think, subject to future rulings the Court might make on things like rebuttal experts, a week? Week and a half?
JUDGE KAPLAN: Okay. Thank you.
I know I have at least one outstanding item, which was the defense application of I think October 2, right? Is there anything else that's outstanding that I'm not calling to mind?
MR. REHN: Your Honor, we did——we were hoping to get a ruling in the near future, at least, regarding the issue of remote witness testimony that we had submitted at the beginning of the trial.
JUDGE KAPLAN: Well, yes, and I'm waiting for a serious answer——not that you weren't serious before, but perhaps a more informed answer as to what the potential remote witness has to say that wouldn't be cumulative.
MR. REHN: Yes, your Honor. I think in looking at the——we've only had one customer so far and we do anticipate some additional customers, but in looking at the cross-examination of the initial customer who testified, some of the cross went to the fact that that customer had traded in crypto, and there was cross suggesting that the customer had understood that they were engaged in risky crypto trading. The witness who would be testifying from Ukraine solely used their FTX account to hold assets and did not engage in trading, which is unlike the other customers we anticipate calling.
JUDGE KAPLAN: And you don't have anybody else who can testify similarly?
JUDGE KAPLAN: Yes, I understand that, but you have a burden to carry on that and you wouldn't as to other witnesses.
MR. REHN: We understand that, your Honor. We're asking if the Court will permit the remote testimony. Obviously we would, you know, evaluate our witness list and consider alternatives if the Court denied the motion.
JUDGE KAPLAN: I think you'd better consider alternatives. I'm not ruling now, but in order for me to make the findings that I need to make, I think I have to be satisfied that this person is unique, important, and that means noncumulative to me. Am I wrong about that?
MR. REHN: I think that's certainly a factor for the Court to take into account. So in light of that, we will resubmit this issue later this week.
JUDGE KAPLAN: Okay. Mr. Cohen?
MR. COHEN: Your Honor made my point.
JUDGE KAPLAN: Well, these things are bound to happen in a long trial.
MR. COHEN: A stopped clock is right twice a day, your Honor.
JUDGE KAPLAN: Somebody else said that before. I've heard it before.
Okay. Anything else this afternoon?
MR. REHN: We have one more issue just to put on the Court's radar. We had also filed a letter over the weekend regarding preclusion of the defense eliciting testimony regarding the value of and shares in this Anthropic startup company.
JUDGE KAPLAN: I'm sorry. Say it again slowly.
JUDGE KAPLAN: That was the part I got.
JUDGE KAPLAN: Oh, yes, yes, yes.
MR. COHEN: Your Honor, might we respond to that and put in a submission on that?
JUDGE KAPLAN: Yes.
MR. COHEN: When would you like it, your Honor?
JUDGE KAPLAN: When would you like a ruling?
MS. SASSOON: Well, your Honor, this witness who's on the stand made a personal investment in Anthropic and has knowledge of the company's investment in Anthropic, and so in the event that the Court deems this admissible, it might be an issue that we want to raise with her. We don't think that this is a permissible topic of questioning, but if it is, we may want to ask her questions about it.
JUDGE KAPLAN: And you may want to do it tomorrow.
MS. SASSOON: Yes.
MR. COHEN: So we'll have something tonight, your Honor, before 8:00.
JUDGE KAPLAN: Yes, not at 11:05, as we discussed.
MR. COHEN: I also think the door's been opened in light of the direct, but we'll make that point in our letter.
JUDGE KAPLAN: Well, I'm sure you will.
MS. SASSOON: Your Honor, may I raise one more thing.
JUDGE KAPLAN: Yes.
MS. SASSOON: We may ask——we had a motion in limine in our motions in limine that we filed before trial about the all hands meeting in November where Caroline Ellison made certain statements to her employees about the prior events and the involvement of the defendant in borrowing FTX customer money.
JUDGE KAPLAN: This is the "Sam I guess" meeting, right?
MS. SASSOON: Yes. So we had moved that it was an agent statement, a co-conspirator statement. We think it's admissible for those two reasons based on what's been established so far. We also think it's admissible as a prior consistent statement at this point given statements in the opening that the witnesses had a motive to provide the government information about Sam in order to get a cooperation agreement, and so the fact that she made these statements prior to any meetings with the government or knowing of the government investigation meets the standard for prior consistent statement.
JUDGE KAPLAN: When did she make these statements? Just refresh me.
MS. SASSOON: November 9th, so it's before the declaration of bankruptcy.
JUDGE KAPLAN: Oh, yes. That's when she has the explanation——
MS. SASSOON: When Binance has agreed to acquire FTX. So at that point she thinks that Binance is going to acquire FTX, the customers will be made whole, and she is coming clean to her employees.
JUDGE KAPLAN: And that's in furtherance because?
MS. SASSOON: So as laid out in our motion, she discusses this meeting in a Signal message with the defendant prior to the meeting and he gives her input on trying to reassure employees so that they don't quit, and that's in furtherance of the conspiracy because they need employees to keep working to keep satisfying customer withdrawals so the house of cards doesn't collapse.
JUDGE KAPLAN: Okay.
MR. COHEN: Your Honor, we would oppose that. Even counsel's description just now is self-contradictory. I don't know how coming clean to move forward with no co-conspirators is a co-conspirator statement.
JUDGE KAPLAN: Well, I thought the explanation was right on target. He still needs the employees, and if the threat is they're all walking out the door unless she gives an explanation, there's an interest in keeping them. And my recollection is we heard testimony today that that wouldn't have been the first time half the employees walked out the door.
MR. COHEN: Well, your Honor, I don't think right at the moment there is a foundation, there is a basis for that. We haven't heard that testimony as to this meeting.
JUDGE KAPLAN: That testimony being what in particular?
MR. COHEN: As to the purpose behind the November 9th meeting. We had earlier testimony about a different meeting.
JUDGE KAPLAN: No, I know.
MR. COHEN: I take your Honor's point, but we haven't gotten to the point of direct about November 9th.
JUDGE KAPLAN: Okay. Thanks, folks.
COURT CLERK: All rise.
(Adjourned to October 11, 2023, at 9:30 a.m.)