The Journal. - The Trial of Crypto’s Golden Boy: Caroline Ellison Speaks

Episode Date: October 11, 2023

Caroline Ellison met Sam Bankman-Fried trading at Jane Street. The two would go on to have a close professional and personal relationship as his crypto empire grew and then eventually imploded. Now, she has pleaded guilty and is testifying against him. Producer Rachel Humphreys and WSJ’s Caitlin Ostroff discuss her testimony and how the government is using it to build their case against Bankman-Fried.  Further Reading: - What’s Happening Today at the Sam Bankman-Fried Trial  Further Listening: - The Trial of Crypto’s Golden Boy  Learn more about your ad choices. Visit megaphone.fm/adchoices

Tuesday morning, day five of this trial, Caitlin, and when we arrived at 6.45am, there was already a very long line snaking around the courthouse. Tons of reporters and people interested in this case. They were all there to see the star witness in this trial, Caroline Ellison. Yeah. And Ellison is the former CEO of Alameda Research, which was the trading firm that Bankman Freed founded. And she was there for key meetings. She was part of his so-called inner circle. And so a lot of people, I think a lot more than we expected, more than 100, were really interested to hear what she had to say.

And after FTX collapsed last year, she pleaded guilty to seven criminal counts. And on Tuesday, she arrived at court in sunglasses and a baseball cap. And just before the court broke for lunch, she took the stand and said that Bankman-Fried directed her to commit crimes. We've yet to hear Bankman-Fried's side, ask her any questions, but we've already heard some really revealing testimony. From the Journal, this is the trial of crypto's golden boy. I'm Caitlin Ostroff. And I'm Rachel Humphries. Coming up, Caroline Ellison's testimony begins.

With Uber Reserve, you can book your Uber ride in advance. 90 days in advance. Perfect for all you forward thinkers and planning gurus. Reserve your Uber ride up to 90 days in advance. Uber Reserve. See Uber app for details. Caitlin, I don't know about you, but standing in that very long line this morning and then scrambling to get a seat to watch proceedings, there was some elbowing going on today. It really felt like this was the first big day of Sam Bankman-Fried's trial. Before we talk about what we heard from Carolyn Ellison, just remind us, who is she? Yeah, so Ellison in some

ways is similar to Bankman-Fried, for starters, in the sense that she is a math nerd. I mean, here she is talking about it on an FTX podcast. I've been into math since I was probably a little kid, I'd say. Yeah, my dad is an economics professor, and he was always very into math as a kid. So he sort of got me thinking about it a lot from an early age. And Ellison's love of math led her to Stanford University. But she said on the podcast that she was at a loss with what to do next. I guess in junior year, I just didn't really know what to do with my life. And I was like, what do math majors do? I guess I'll like apply to internships at some trading firms to see how that is. And yeah, then I ended up getting some offers.

Those offers led her to the trading firm Jane Street, where she met Bankman Freed. The Zoffers letter to the trading firm Jane Street, where she met Bankman Freed, and eventually she joined Alameda Research in 2018. It was kind of daunting. I don't know, I guess I was like a trader for, I mean, not that long at Jane Street, but a year and a half, which was kind of more trading experience than a lot of Alameda traders had at the time. And she went on to become CEO of Alameda and emerged as a key figure when FTX collapsed last year. And after Gary Wong finished his testimony this morning, she took the stand. Yeah, she came in wearing this like pink or red, depending on who you ask, dress, a grey blazer and her usual glasses. And she seemed pretty nervous at the start. The prosecution was asking her to identify where Bankman Freed was sitting in the courtroom

as they have every other witness. And it took her, you know, a couple seconds to kind of like figure out where he was. There were kind of some awkward laughs in the courtroom. It was a little bit awkward, wasn't it? Yeah. And she like sat down when she had identified him. And one of the things reporters are interested in with Caroline Ellison is that she dated Bankman Freed. How soon did prosecutors begin asking her

about that? Fairly early into their questioning, they asked her about her relationship with Bankman Freed. And she said that it was kind of on again, off again, romantic relationship from late 2018. And she and Bankman Freed tried to keep it a secret, but people still found out. And online, there was some excitement in response to a comment that Caroline Ellison made about Bankman-Fried's ambitions. Yeah, she said that at one point, Bankman-Fried told her that, you know, he thought there was a 5% chance that he would become president of the United States. And a lot of the reporters in the room started to laugh at that. Yeah, I'm sure they did. Yeah. I can't say whether 5% is a big

or small chance. It's certainly higher than mine. And did Ellison say anything about what her relationship with Bankman-Fried was really like? Yeah, she said that, you know, she really wanted more from the relationship and felt that Bankman-Fried wasn't spending enough time with her. And the relationship kind of fizzled out. And that personal relationship also bordered with the professional relationship. While Ellison was the CEO of Alameda Research, Bankman-Fried was still the one who owned 90% of the company. And she reported him. 90% of the company, and she reported him.

And this role gave Alison a unique vantage point into Bankman Freed's business decisions, and we're going to talk about that next. Picture this. You finally get to the party, and it's the usual drinks and small talk. See you next time. of your own night. Unapologetically full-flavored cocktails with a 13% punch. Seagram 13. Dare to make your own luck. Must be legal drinking age. Please enjoy responsibly. Available at the LCBO. Need a great reason to get up in the morning?

Well, what about two? Right now, get a small, organic fair trade coffee and a tasty bacon and egg or breakfast sandwich for only $5 at A&W's in Ontario. Caitlin, we learned last week from Gary Wong about how using FTX customer funds became common practice. And today, Caroline Ellison talked about Bankman Freed's attitude to that, didn't she? Yeah, Ellison said that, you know, Bankman Freed was okay in the past with Alameda

tapping that line of credit that Alameda had from FTX. She pointed to one example in 2021 where Bankman Freed said it was okay to use it. And ultimately in that instance, they tapped a billion dollars of customer funds. And then she went on to another spreadsheet that she had put together later where she actually was trying to assess almost like a doomsday scenario for Alameda, where crypto prices were crashing, what the impact would be on Alameda. And as she's kind of organizing what funds Alameda would have available to it, there's two lines in it. One says $3 billion in dollars.

One says $4 billion worth of crypto. And she marks those off as FTX customer funds that she believes Alameda is able to tap. Right, so as CEO of Alameda, what you're saying is she says she was aware and knew that she just had access to FTX customer funds if she needed them. Yes, and more so,

Ellison said that she showed the spreadsheet that we went over meticulously for about an hour to Bankman Freed. And he had no comments on the fact that she was factoring in that they could tap FTX customer funds. Yeah, it was part of the business plan from what she's saying. Yeah. She said, you know, there was a past of being able to use it. That was the expectation going forward. Bankman Freed did not push back against that. That was the expectation going forward. Bankman-Fried did not push back against that. You know, I had a moment today when we were looking at a spreadsheet where I had to pinch myself because we're talking about billions so often

in these spreadsheets that were missing or were being used. And you forget how much money that is when you're just looking at numbers on a page. Yeah, I like write B in like a big capital letter and like M so rarely that I'm like, this is, it's insane. And Alison started off nervous today at the beginning. How would you describe her demeanor as the afternoon wore on? Yeah, she seemed to get a lot more confident as the day went on. She seemed much more composed, giving kind of straight, clear answers. This is still obviously the government's questioning of her, though. And so it's unclear when we'll get into cross-examination, but I think we'll be looking to see kind of what her demeanor is during that as well.

And what can we expect tomorrow, Wednesday, day six? I think we are expecting the remainder of Caroline's testimony. She's still in the part right now where the government is having her kind of give her timeline of what's happened. So we're just kind of at the start of 2022 in that chronology right now. And then we're going to get the defense's cross-examination of Ellison, where we expect them to be digging deep into a lot of what she said and I think it's really going to be a pivotal moment in the trial where the cross-examination of Ellison so central to all of these events is going to be really important for the jury. Yeah I'm really interested to see where the defense go with their questioning.

Yeah it's going to be pretty big, I think. That's all for today, Wednesday, October 11th. The Trial of Crypto's Golden Boy is part of The Journal, which is a co-production of Spotify and The Wall Street Journal. I'm Caitlin Ostroff. And I'm Rachel Humphries. This series is produced by Enrique Perez de la Rosa, and it's edited by Catherine Whalen.

Additional reporting from James Finnelli and Vicky Guohuang. Our engineer is Peter Leonard. Our theme music is by So Wiley and remixed by Peter Leonard. Thanks for listening. Check back here for trial updates.