Caroline Ellison testifies she committed fraud with Sam Bankman-Fried

By Luc Cohen and Jody Godoy

NEW YORK (Reuters) - Caroline Ellison, the former chief executive officer of Sam Bankman-Fried's hedge fund Alameda Research, testified on Tuesday that she committed fraud together with the former crypto mogul.

Ellison, who was also once Bankman-Fried's romantic partner, is one of three former members of the 31-year-old former billionaire's inner circle who have pleaded guilty to fraud charges and agreed to cooperate with the Manhattan U.S. Attorney's office. 

"Alameda took several billion dollars of money from FTX customers," Ellison said on the witness stand, adding that Alameda used the money for investments and to repay its lenders.

Prosecutors say Bankman-Fried used stolen FTX customer funds to pay back Alameda's lenders, buy real estate and donate to U.S. political candidates to burnish his influence in Washington.

Bankman-Fried has pleaded not guilty and has argued that while he made mistakes running FTX, he never intended to steal funds. In his opening statement last week, defense lawyer Mark Cohen told jurors to question whether cooperating witnesses like Ellison were putting a new, nefarious spin on old decisions by Bankman-Fried which they had originally agreed with.

Gary Wang, FTX's former technology chief, testified last week that Bankman-Fried directed him to allow Alameda to run a negative balance on FTX and borrow up to $65 billion from the exchange - privileges other customers lacked. A third cooperating witness, former FTX engineering chief Nishad Singh, is also expected to testify at the trial, which could last up to six weeks.

Jurors have already heard plenty about Ellison. Cohen in his opening statement said Bankman-Fried had advised Ellison to hedge Alameda's bets against a downturn in cryptocurrency markets, but that she did not do so.

Without referring to Ellison by name, prosecutor Thane Rehn in his opening statement said Bankman-Fried had installed her as Alameda's chief as a "front," but that Bankman-Fried was still calling the shots.

Adam Yedidia - a former FTX software developer who lived with Bankman-Fried, Ellison and seven others at a $35 million Bahamas penthouse near the company's headquarters - testified on Thursday that Bankman-Fried in early 2019 told him that he and Ellison had had sex and asked his advice on whether he should date her. 

"I said no," Yedidia said. "He said he figured that was reasonable and thought that I would say something like that."

While Bankman-Fried has written blog posts and granted interviews to reporters since his December 2022 arrest, Ellison has maintained a low profile since she pleaded guilty that same month.

In July, the New York Times published a story citing Ellison's private writings from before FTX's collapse in which she described feeling overwhelmed at work and hurt by a breakup with Bankman-Fried. After defense lawyers acknowledged that Bankman-Fried had shared the writings with a Times reporter, U.S. District Judge Lewis Kaplan revoked his $250 million bail and sent him to jail for probable witness tampering. 

(Reporting by Luc Cohen and Jody Godoy in New York; Editing by Noeleen Walder, Nick Zieminski and Matthew Lewis)