Former Alameda head: Bankman-Fried sought to become US president

On October 10, the former Alameda Research CEO Caroline Ellison testified as a witness at the proceedings in the case of Sam Bankman-Fried (SBF). She confessed to crimes committed under the leadership of ex-boyfriend and spoke of his grand ambitions.

First testimony

In court, the 28-year-old Ellison appeared in a gray suit over a pink blouse and behaved rather restrained, according to journalists report Biness Insider. In response to questions, the former head of Alameda answered loudly and clearly, pointing at SBF just 30 seconds after the start of her testimony.

According to the witness, Alameda had access to client deposits at FTX with an unlimited line of credit. At the same time, some of the funds were deposited directly into the company’s bank accounts.

She explained that the practice of using client assets began at Bankman-Fried’s direction, when he was the CEO of Alameda Research.

Ellison also sent falsified reports to banks at the order of her boss to conceal the company’s precarious position.

Because FTX had a backdoor for a partner firm worth $65 billion, such practices allowed ‘borrowing’ certain tokens from users for arbitrage and other manipulations.

The situation was somewhat unsettling for Ellison, given that clients and investors had not been warned about such an arrangement.

When questioned about the reports of suspicious operations, SBF simply waved them off, according to the former girlfriend of the magnate. He believed auditors would simply not notice.

When Alameda faced difficulties securing new lenders, Bankman-Fried devised the FTT token, handing about 60-70% of the coin’s issuance to a partner for free. The head of FTX also ordered Ellison to secretly buy the asset if the price fell below $1.

With a large amount of FTT on its balance sheet, Alameda could obtain perpetual loans from lenders such as Genesis.

Bankman-Fried — ambitions for the presidency

Asked later about the founder’s ambitions, she saw in him a desire to become a significant player in the worlds of business and politics.

She said that their relationship developed in fits and starts from autumn 2019. Ellison and Bankman-Fried met at the investment firm Jane Street where she was interning.

Later, her boyfriend persuaded her to join Alameda Research as a trader, and by 2021 she had become chief executive.

At one point, the exchange’s head told her that his odds of ever becoming president were 5%.

In his view, political donations were a good investment. In 2020 Bankman-Fried entered the top-20 sponsors of the current US President Joe Biden, contributing $5.22 million.

“He considered this to be a very effective investment. It could yield very high returns for relatively small amounts of money,” said Ellison.

She also added that SBF described himself as “truly risk-neutral.”

Obsession with capital

As Alameda took on more and more, its collateral dried up. It was supported by the so-called “Samcoins” — FTT, Serum, Maps and Oxygen. Ellison described these coins as illiquid, reports The Block.

Nevertheless, Bankman-Fried still faced capital problems, for example in 2021 when he wanted to buy back shares of FTX held by Binance.

But as the crypto exchange grew, Alameda gained access to an ever larger source of immediate financing — client deposits. It was from there that the funds for the $2.1 billion deal with Binance came.

By the end of 2021, SBF said there was an urgent need to borrow “as much money as possible,” Ellison testifies. Around the same time he asked his girlfriend to prepare “billions” for venture investments.

The former CEO of Alameda warned of the high risks that would put the company in danger, but Bankman-Fried did not back down and announced the creation of FTX Ventures.

Alameda’s debts continued to grow in 2022, including sums of which Ellison herself did not suspect. It was only in May that she learned of $5 billion spent on dubious investments and political contributions.

At that time, Alameda’s net assets were “quite positive”, even with a “substantial share of leverage”, Ellison notes. However, the situation suddenly changed in the same month after the Terra collapse and the depeg of the algorithmic stablecoin UST.

Earlier Ellison pleaded guilty to charges related to the collapse of the platform and agreed to cooperate with authorities. The former Alameda head described price manipulation of the FTT utility token.

Ellison also admitted to intentional deceiving of creditors. She says that she “knew it was wrong.” The former Alameda head, along with the former CEO of FTX, concealed agreements from investors and forged financial statements.

U.S. prosecutors indicted SBF on seven criminal charges. He pleaded not guilty to all counts.