$8B Margin Mystery: Alameda’s Caroline Ellison to Testify Against Bankman-Fried Next Week

After hearing witness accounts in the FTX trial this week, proceedings will resume on Tuesday, October 10, 2023. Caroline Ellison, former CEO of Alameda Research, is reportedly slated to take the stand. Ellison’s testimony could be pivotal; she helmed Alameda following Samuel Trabucco’s exit and once shared a romantic relationship with Sam Bankman-Fried.

Alameda’s Financial Intricacies: Ellison’s Moment in the Spotlight Approaches

This week, the courtroom tuned in to testimonies from Sam Bankman Fried‘s colleagues, Zixiao (Gary) Wang and Adam Yedidia. Come Tuesday, after a brief weekend hiatus, all eyes will be on Caroline Ellison, the former business executive, quantitative trader, and CEO of Alameda Research, as she takes the stand. Let’s delve into Ellison’s background and understand why she might emerge as Bankman-Fried’s most compelling and assertive witness.

Yet, before we proceed, it’s worth highlighting that FTX co-founder Gary Wang revealed during his testimony that Alameda enjoyed unique privileges, allowing the trading entity to exceed its account limits and utilize customer assets. Ellison is the child of MIT economists and is known to be an “effective altruist,” someone who tries to maximize the good they can do by making money and spending it based on so-called rational calculation.

Her professional journey began in the trading realm with a stint at Jane Street in equities before her transition to Alameda. In 2018, Ellison boarded Alameda as a trader, ascending to the role of co-CEO by 2021. Following Sam Trabucco’s departure, she took the reins as the exclusive CEO. Reflecting on Trabucco’s exit, Ellison fondly recalled their collaboration as “an incredibly formative experience” and sent him warm wishes for his maritime adventures. Yet, 2022 proved tumultuous for Ellison.

In December of that year, Bitcoin.com News received an anonymous tip-off: a screenshot allegedly showcasing Ellison’s FTX account from May 2022, indicating a staggering deficit of $1.31 billion. This image was purportedly shared by Ellison with members of the FTX technical support team. The storm intensified with the Coindesk exposé on Alameda’s financials on November 2, 2022, prompting Ellison to voice her dissent.

Addressing the buzz on the social media platform X (previously known as Twitter), Ellison clarified, “A few notes on the balance sheet info that has been circulating recently. That specific balance sheet is for a subset of our corporate entities, we have [greater than] $10 [billion] of assets that aren’t reflected there. The balance sheet breaks out a few of our biggest long positions; we obviously have hedges that aren’t listed. given the tightening in the crypto credit space this year we’ve returned most of our loans by now,” she elaborated.

Subsequently, Ellison vanished from the public eye, only to be allegedly sighted at a Manhattan café alongside FTX’s pet dog, Gopher. Rumors swirled about her collaboration with the U.S. government. The plot thickened on December 21, 2022, when the Department of Justice (DOJ) leveled charges against both Alameda Research CEO Caroline Ellison and FTX co-founder Gary Wang. Both entered guilty pleas and began collaborating with federal authorities. Amidst the whirlwind surrounding FTX’s downfall, it emerged that Ellison and Bankman-Fried shared more than just professional ties — they were romantically involved.

Ellison Said if Market Maker’s Balance Was Negative, ‘Alameda Was Borrowing Customer Funds’

In her unsealed guilty plea transcript, Ellison explained that Bankman-Fried had directed her to co-mingle customer funds since 2019. “From 2019 to 2022, I was aware that Alameda was provided access to a borrowing facility on FTX.com, the cryptocurrency exchange run by Mr. Bankman-Fried. I understood that executives had implemented special settings on Alameda’s FTX.com account that permitted Alameda to maintain negative balances in fiat currencies and cryptocurrencies,” Ellison’s testimony details.

Ellison’s statement continued:

I understood that if Alameda had significant negative balances in a particular currency, it meant that Alameda was borrowing funds that customers had deposited on the exchange.

In a frank Twitter Spaces conversation with Bankman-Fried, tech mogul Kim Dotcom pointedly questioned the trustworthiness of Bankman-Fried, especially after he seemingly “threw his lover under the bus.” During this exchange, Bankman-Fried asserted that he “wasn’t running Alameda” and was unaware of its leverage positions. Yet, in a separate dialogue with New York Magazine, he touched upon an oversized margin position that had ballooned uncontrollably.

“We should not have allowed a margin position to get that big,” Bankman-Fried stressed to New York Magazine reporter Jen Wieczner. “It was too big. And it was too big, given the liquidity of the collateral.”

It’s highly probable that Ellison is privy to the intricate details of Alameda’s leverage positions and the enigmatic margin stance. If Bankman-Fried was in the dark about Alameda’s operations, it’s clear that Ellison, and possibly Sam Trabucco, were in the know.

Come Tuesday, Ellison will confront Bankman-Fried, shedding light on her perspective and delineating her ties with the FTX chief. Up to this point, the testimonies from Yedidia and Wang have been incriminating. The defense might consider pivoting from painting Bankman-Fried as a selfless individual who drove a Toyota Corolla.

How do you feel about Caroline Ellison gearing up to testify against Sam Bankman-Fried next week? Share your thoughts and opinions about this subject in the comments section below.

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