Caroline Ellison sank to the trading-room floor and, exhausted and tearful, tried to explain.

The crypto hedge fund Alameda Research she’d helped build alongside Sam Bankman-Fried, her on-and-off boyfriend, was about to come crashing down, Ellison told employees.

People gathered around her on the carpet. Alameda Research, Ellison admitted, the FTX-affiliated firm she ran as chief executive officer, had siphoned off billions in customer funds from FTX – one of the biggest financial frauds of all time, US authorities now say. Who authorized it? someone asked.

“Um, Sam, I guess,” Ellison answered.

Candid moments like that one, in November 2022, have now been immortalized in the matter of the United States v Samuel Bankman-Fried. And they loom large as Ellison assumes a new role in the yearlong FTX saga: star witness against Bankman-Fried, crypto golden boy-turned-crypto villain.

Few know more about the inner workings of FTX and Alameda than Ellison, 28. Her account to employees offers a glimpse of what’s in store as she tells her side of the FTX story in federal court in Lower Manhattan. She struck a cooperation deal with the government last year.

In the second day of the historic fraud trial, her role in the FTX implosion was immediately apparent with both the prosecution and defense seeking to prepare the jury to hear evidence about her role. Prosecutors portrayed her as Bankman-Fried’s romantic partner and closest confidant, one of the only ones that knows the truth.

In turn, defense lawyer Mark Cohen pointed the finger at Ellison, portraying her as an executive whom Bankman-Fried trusted to run the sister company and relied on to hedge any exposure. But she didn’t, Cohen told the jury.

Her testimony has the potential to be particularly personal: In journals now in the hands of prosecutors, Ellison spoke of her fractious romantic relationship with Bankman-Fried, their serial breakups and reunions and the challenges of working with him.

Bankman-Fried, 31, has pleaded not guilty to charges that he swindled billions from FTX. In interviews, blog posts and social media, he has challenged allegations that he orchestrated an epic fraud.

Ellison, by contrast, promptly pleaded guilty and agreed to testify against him. Her testimony could help move a jury send him to prison for decades. Ellison’s appearance in the courthouse for her testimony will be one of the few times she’s seen in public since the collapse.

The pair first met at Jane Street Capital, the Wall Street trading firm. Ellison, a Stanford-educated mathematician, never really stood out there, according to people familiar the matter. When Bankman-Fried left to start Alameda, Ellison soon followed. Before long, they were dating.

For much of their time together at FTX – approximately five years — Ellison seemed to live in Bankman-Fried’s shadow, according to people who worked with her.

Ellison started out at Alameda a low-profile trader. But by October 2021, she had risen to co-CEO with Sam Trabucco, one of Bankman-Fried’s friends from high-school math camp.

Trabucco thrived under the pressure of trading. Ellison, the quieter of the two, mostly focused on quantitative analysis, strategy and operations, people who worked with them say. The co-CEO arrangement didn’t last long: Trabucco departed about a year later, leaving Ellison as the sole CEO.

By this point, prosecutors allege, Ellison knew that FTX and Alameda were more closely entwined than Bankman-Fried had let on publicly.

Few FTX employees knew Ellison and Bankman-Fried were romantically involved. Behind the scenes, however, the relationship was fraught. The two broke up and reunited several times. Prosecutors say Bankman-Fried cultivated a “secretive criminal relationship of trust” and “authority over her trading decisions at Alameda.” The two ended things for good in early 2022.

In her plea agreement, Ellison said she doctored financial statements with Bankman-Fried to disguise the flow of money between FTX and Alameda. Bankman-Fried also instructed FTX executives to alter computer code to give Alameda an unlimited line of credit using FTX customer money, Ellison testified. Customer money also went toward multibillion-dollar loans to executives, as well as real estate in the Bahamas.

In another instance, according to court documents, Bankman-Fried directed Ellison to carry out secret trading to inflate the price of FTT, FTX’s native token, to give Alameda more borrowing power.

At Bankman-Fried’s trial, Ellison is expected to testify about all of this and more, down to the final moments of the FTX empire in late 2022.

As FTX began to flounder last November and investors started to panic, Bankman-Fried and Ellison united in a last-ditch effort to save the exchange. Among their ideas: Sell nearly $648 million of Robinhood Markets Inc. stock that Alameda was supposed to be using as collateral for a loan, according to people familiar.

It was too late. FTX filed for bankruptcy roughly 48 hours after Ellison’s tearful meeting with employees in Hong Kong. She agreed to cooperate with investigators after the FBI searched her home in New England.

Since then, Ellison has pointed prosecutors to a wealth of evidence, from a list about what was on Bankman-Fried’s minds to personal diaries, to contemporaneous meeting notes. Her sentence will depend on the value of that cooperation.

People who worked at FTX hardly see her as a hero. Aditya Baradwaj, a former Alameda software engineer who was present that day in Hong Kong, said employees sensed something was wrong. The office’s security guards had left. A corporate account for a food delivery app had stopped working.

Ellison’s explanations, Baradwaj recalled, got a chilly reception. After her teary floor-circle, Alameda employees left for drinks. Ellison wasn’t invited.

Author: Hannah Miller, Annie Massa and Ava Benny-Morrison