Unchained - SBF Trial, Day 7: In SBF Trial, Did the Defense Lose Its Opportunity With the Star Witness?

Episode Date: October 13, 2023

Day seven of Sam Bankman-Fried’s criminal trial saw the defense team unable to discredit Caroline Ellison, despite multiple attempts. The defense's questions often seemed aimless, failing to draw any substantial conclusions. Ellison remained steadfast, revealing that SBF had plans to buy Telegram around the time Alameda "borrowed" $14 billion of FTX customer money. Defense attorney Mark Cohen tried to portray Ellison as the one in charge of Alameda, but she clarified that SBF was the ultimate decision-maker. Ellison also disclosed that she had considered resigning from Alameda but was persuaded by SBF to stay, emphasizing his control over the firm. The day continued with testimony from Christian Drappi, a former Alameda employee, who corroborated Ellison's account. Zac Prince, founder of the bankrupt crypto lending firm BlockFi, briefly took the stand, setting the stage for his testimony to continue the next day. Catch up on Unchained’s previous coverage:  Sam Bankman-Fried Trial: Here’s Everything That Happened So Far SBF Trial, Day 1: Possible Witnesses Include FTX Insiders, Big Names in Crypto, and SBF’s Family SBF Trial, Day 2: DOJ Says Sam Bankman-Fried ‘Lied’ While Defense Claims His Actions Were ‘Reasonable’ SBF Trial, Day 3: Why a True Believer in FTX Flipped Once He Learned One Fact SBF Trial, Day 4: SBF’s Lawyers Annoy Judge Kaplan, While Wang Reveals Alameda’s Special Privileges SBF Trial, Day 5: SBF's Defense Finally Found Its Legs, But Can It Counter Caroline Ellison? SBF Trial, Day 6: Caroline Ellison Recalls 'The Worst Week of My Life' Did Sam Bankman-Fried Have Intent to Defraud FTX Investors? Here’s How Sam Bankman-Fried’s High-Stakes Trial Could Play Out SBF Trial: How Sam Bankman-Fried’s Lawyers Might Try and Win His Case The High-Stakes Trial of Sam Bankman-Fried Begins: What to Expect In the SBF Case, Elite Corruption Is What’s Really on Trial Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi everyone, Laura here. Thanks for tuning into the unchained recap for day seven of the criminal trial of Sam Binkman-Fried. The cross-examination of the prosecution's star witness, Caroline Ellison, concluded Thursday, without the defense seeming to land any punches. A few times Sam Binkman-Freed's legal team reverted back to its habit from last week of asking questions that simply repeated information already produced without making any new points about them. This, among other things, led to frequent tense sidebars between the defense and the prosecution. And while the jury couldn't hear what was said,

the heated interactions were on full display. Still, shocking new facts came to light, such as that around the time that Alameda had borrowed $14 billion of FTX customer money, Sam Bankman-Fried told Ellison he wanted to make a big investment in messaging platform telegram. And after the cross-examination ended, the testimony of the next witness got Fudd and Yolo into the court transcript. The defense team's initial inquiry Thursday morning touched upon a number of topics, though it wasn't always clear where the line of questioning was going, or what points they wanted the jury or other observers to take away. For instance, defense attorney Mark Cohen asked questions about various Alameda accounts on FDX,

listing information such as the ballpark number of sub-accounts Alameda had, but didn't seem to draw a conclusion. Early on, Cohen was able to score a few points for his defendant. He mentioned an early incident in which a large percentage of Alameda employees left the firm before Ellison arrived. Although SPF had hidden the fact of the mass departure from her initially, the defense, after a long discussion between the lawyers with the judge and the sidebar, got her to say she ultimately concluded SPF had been right in this dispute.

Under his questioning, she also admitted that when she said, he was co-CEO and CEO, Bankman Freed was not only absent for long periods of time from Alameda, but also didn't make day-to-day decisions for the trading firm. Other subjects Cohen touched on were how Bankman-F's ambition was greater than hers, though she said SPF encouraged her to be more ambitious, differences in their fashion style, the contrast between his approach to the media and hers, the fact that she was more conservative when it came to business than Bankman-Fried, etc. For instance, she said that she did not support plans to start FTX.

However, at this point, Cohen presented Ellison with two documents establishing that they were the types of documents that she would regularly produce in her line of work. With the third document, she didn't say it was part of her regular practice. With additional questions, prosecutor Danielle Sassoon began objecting to each question or even rephrasing of the question, until finally, lawyers had to back and forth over which laws allowed or didn't allow this document to be used as evidence. Ultimately, they went again to the sidebar, and testimony for the day had barely begun. At the sidebar, Cohen argued that he wanted to use the document to rebut that Ellison was just taking instructions from SPF and instead showed

that she really ran Alameda. But based on the grounds of this not being a document that Ellison regularly updated, the prosecution's objections were sustained. In further cross-examination, Ellison said she and Tribucco became co-CEOs of Alameda in 2021, handling the trading firm's day-to-day operations. Although it seemed Cohen wanted to portray them as the decision-makers, she said that although Ellison and Tribucco provided input into the firm's trading strategies, Bankman Freed was the ultimate decision-maker. By the end of 2021, Tribuco had stopped coming into Alameda's offices. Ellison said she and Bankman-Fried had conversations about replacing Tribugo with Ben Shia.

Alameda's head of trading, but Ellison didn't think it made sense. The defense then asked a series of questions about her duties, potentially laying the groundwork to promote the theory later that she was in charge, for instance, showing that she handled accounting, balance sheets, and for a period, lender relationships. Ellison, in her testimony, said she had considered resigning from Alameda at various points, including in the summer and fall of 2022, shortly before Alameda imploded. She said when SPF found out, he, quote, told me that I couldn't, that I was too important to keep at Alameda, and he thought I needed to stay at Alameda.

Now streaming on Paramount Plus, it began on the shores of New Jersey. The calls of gym, tan, laundry, reverberated north to Canada, where a new type of party animal resides. They move as a herd migrating to their favorite watering holes, asserting dominance by flexing, grinding, and twerking. Coupling is quick, steamy, and sometimes in hot tubs. When morning arrives, they do it all over again. Canada Shore, new original series, now streaming on Paramount Plus. Ellison didn't resign because, at the time, she trusted the defendant's opinion and didn't want the firms to collapse. Then a string of repetitive questions ensued.

Cohen asked Ellison about Alameda's relationship with its third-party lenders, her compensation, and her romance with the defendant. At this point, the prosecution objected saying, Your Honor, we've now had several minutes of simply repeating the direct examination. When Cohen resumed, he asked her a few questions about how their breakup affected her ability to communicate with SBF at work. He then asked about the days post-bankruptcy when she had retreated to her parents' house and the FBI came. She acknowledged that the FBI seized a computer from her boyfriend, who had also worked at FTX and or Alameda, as well as a computer belonging to her mother.

At this point, a string of questions about her cooperation agreement ensued, which was confusing because these typically come at the end of the cross-examination and the schedule wasn't even halfway through the morning. This prompted Judge Lewis Kaplan to say, Mr. Cohen, I'm not rushing you, but in almost 30 years, most cross-examinations of cooperators I have seen have ended with what you just did. Cohen responded he thought he would mix it up. Another confusing line of questioning almost seemed to imply that Ellison hadn't really committed securities fraud, as if the defense were concerned she had incorrectly pleaded guilty to one of her charges. Again, it wasn't clear where this was going for the defense. Raising questions about Ellison's leadership, the defense asked about how the collapse of

Tara Luna in May 2022 impacted the trading firm. Ellison said Elamita lost roughly $100 million in UST, concluding that, quote, it had been a bad idea, a mistake at the time to own UST. Ellison said she had multiple conversations with Bankman Freez starting in early 2022 about hedging, or, quote, ways to reduce Alameda's risk by selling assets that were correlated with Alameda's portfolio. It wasn't until September 2022 that Ellison put on hedges to protect Alameda from the crypto market sliding. The defense team introduced a document by Ellison updating SPF about Alameda. In it, she said, the, quote, biggest factor that prevented Alameda from making as much money as it could was its leadership. Quote, Trebuco and I weren't as good managers or leaders as we

could be, and we weren't pushing employees to make new things or do better in the way that I wished we were, she had written. Cohen also probed Ellison about her personal competition against Modulo Capital, another trading firm in which Bankman Freed had invested, which was run by another one of SBF's exes. Ellison said the two firms competed on talent, trading strategies, and funding from Bankman freed. Referring to Modulo, Ellen confessed that she had wanted to, quote, crush them. At times, it seemed the defense tried to push an argument, but Ellison's response would make it unviable. For instance, Ellison verbally told Cohen that in 2022, she thought Alameda had performed terribly. However, he pointed out, in a July 22 Google document written by Ellison, which she

shared with Alameda employees, she indicated Alameda had executed very well. Ellison then explained to Alameda employees perform well, but the problem stem from the firm's management. The Google Doc was meant to keep the morale high for Alameda employees, but admitted that she felt she was misleading them about her true feelings. When the defense brought up SBF's trip to the Middle East to fundraise around the time when Alameda owed FtX $14 billion, Ellison said that not only did he come back empty-handed, but he also now wanted to make a large investment in messaging platform telegram. Cohen asked Ellison about tweet she sent after Elamita's balance sheet got leaked. In one, she wrote that Alameda had greater than $10 billion in assets

not reflected on the leaked balance sheet. However, during cross-examination, Ellison admitted that the asset she was referring to actually personally belonged to Bankman Freed. Cohen again brought up the November 9th All-Hands meeting, before which Ellison had reached out to Bankman-Fried via Signal to ask for advice on what to tell employees. The defense reviewed the signal chat and asked her if her goal had been to get employees to stay, but she demurred. I was trying to be honest and help them do whatever was in their best interest, she said. He then asked whether, in the all hands, she had covered the topics of accounting, an internal software system known as the pointer system, Alameda's interactions with lenders, and whether

she had revealed wrongdoing at the company. She said yes, and then he said, but you were also asking them to stay. She responded she didn't ask them that, but that it would have been appreciated if they could help wind down the firm. And with that, the cross-examination of the trial's star witness ended. Next up was Christian Drapey, a former Alameda software developer who started in May 2021 and whose testimony added credibility to Ellison's assertion that Bankman Freed was the ultimate decision-maker at Alameda when she was CEO, amongst other things. In a short but effective testimony for the prosecution, Trapy first testified that while

Bankman-F-F-Dood wasn't Alameda's CEO, SPF still had direct communication with the jury. the trading firm, possessed access to privileged data, and was involved in large trades involving, for instance, Japanese bonds, Japanese currency, and the NASDAQ index. On November 8th, Drapey was with two other Alameda employees and Ellison in the firm's Hong Kong office when he learned that SPF announced Binance might acquire FTCS. Drapey said he was, quote, utterly shocked. In his description of the All Hands meeting on November 9th, Drapey said Ellison, who was sitting on a beanbag, runned by 15 people, led the meeting and provided answers to people's questions. He said her demeanor was, quote, sunken, kind of slouching, and that she, quote, did not display

confident body language. When the prosecution asked Drapy whether the meeting was audio recorded, he said yes. Rick Best, another Alameda trader, had recorded it. Best had joined Alameda just three days prior. In a series of audio clips of the meeting, words like Fudd and Yolo were heard, and Drapey had to define each one for the jurors. Then he himself was heard on one of the clips asking, quote, was they were a plan to make FTCS users not fucked if this were to happen? Drapey asked Ellison in the meeting what the plan was for Alameda to pay back FTC's customers, to which Ellison said, quote,

FTCS was trying to raise in order to do this. But yeah, after the crash, no one wanted to invest. For Drapey, this was concerning. He said, quote, when a company raises money, it's about future growth and not to fill in a hole in a balance sheet. In another clip where Ellison laughed, he said it was nervous laughter

and characteristic of her. In another clip, Drapey asked Ellison, I'm sure this wasn't like a Yolo thing? And asked her, who else knew? Ellison said she also talked to Bankman Freed, Singh, and Wong. On an audio clip played in the courtroom,

another employee, asked whose decision it was to use FTC's customer deposits. Ellison's response was, uh, Sam, I guess. She had explained earlier in the testimony that she had said, I guess, as a, quote, vocal tick because she, quote, hadn't gone into the meeting intending to cast blame on anyone. But I also wanted to be honest and open in answering my employee's questions.

In a mic drop for the prosecution, Drape said that within 24 hours of the meeting, he resigned. Thursday concluded with Zach Prince on the witness stand. Although he only spoke for 10 minutes, Prince described how blockfifes. made it publicly clear its lending program would lend out customer deposits to generate revenue, a clear contrast to what happened at FTX. He also noted that BlockFi lent out hundreds of millions of dollars to Alameda research and then went bankrupt itself. The trial begins again Friday with Prince's testimony at 9.30 a.m. Eastern. Check back Friday for more updates.

You can also check out our real-time updates from me, posted on my Twitter feed, at lunchtime, and after court lets out each day. usually run 430 p.m. ET. Otherwise, you can catch our slightly more polished recaps here on the podcast feed. Thanks for tuning in.