Prosecutors Will Use Caroline Ellison's Private Notes as Evidence in Sam Bankman-Fried’s Trial

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Prosecutors have revealed their intention to use the personal memos of Caroline Ellison as evidence in the upcoming trial of Sam Bankman-Fried, founder of the bankrupt cryptocurrency exchange FTX.

The prosecutors presented on Aug. 14 a 70-page court filing outlining their case, shedding light on the detailed account they plan to present to secure a conviction.

Central to the prosecution’s strategy is the utilization of handwritten and typed notes maintained by the former Alameda Research CEO Caroline Ellison.

The documents include minutes taken during meetings between Ellison and her alleged co-conspirators, discussions that delved into the financial health of Alameda, the crypto hedge fund she worked for, and its financial obligations to FTX.

One such memo, entitled “Things Sam is Freaking Out About,” includes discussions revolving around key business concerns, including Alameda’s trading strategies, negative media coverage related to the Alameda-FTX relationship, and fundraising efforts.

The prosecutors highlighted that these personal notes are important for more than just being stories passed around. They have value because Ellison made them remember important information and helped her play her part in the plan. They stated:

They say her writings are not inadmissible hearsay because Ellison took notes to memorialize information supplied to her and to provide a reference to help carry out her role.

Ellison’s All-Hands Meeting

Of particular interest is a recording from a pivotal all-hands meeting on November 9, 2022, during which Caroline Ellison addressed Alameda employees. This meeting, secretly recorded by an employee, sheds light on the internal dynamics during a critical juncture for FTX.

With FTX facing a solvency crisis and a proposed acquisition by Binance in motion, Ellison’s statements reveal insights into the financial turmoil faced by the companies.

Alameda Research ex-CEO Caroline Ellison — Caroline Ellison, the Alameda Research ex-CEO

Caroline Ellison: Substantial Sums Borrowed

Ellison candidly shared that Alameda had borrowed substantial sums through open-term loans, which were invested in illiquid assets. Following the cryptocurrency market crash, these loans were called, causing a ripple effect across Alameda’s finances and, subsequently, FTX’s user funds. She said:

Starting last year, Alameda was kind of borrowing a bunch of money via open-term loans and used that to make various illiquid investments. . . . Then with crypto being down, the crash, the — like, credit crunch this year, most of Alameda’s loans got called. And in order to, like, meet those loan recalls, we ended up borrowing a bunch of funds on FTX which led to FTX having a shortfall in user funds.

Ellison offered additional insight by sharing that her primary strategy at the moment is for Alameda to gradually shut down its operations as soon as it can settle its debts and fulfill any remaining commitments they have. She explained:

I think my current default plan is that Alameda will likely wind down once we can, like, repay all of our creditors and sort of wind down a bunch of our, like, whatever remaining obligations we have.

Legal precedents indicate that these statements aren’t considered hearsay because Ellison was working for the defendant and she made these statements as part of her job, the filing said.

Prosecutors to Feature Other Alleged Co-Conspirators

In their filing, prosecutors also outlined their intent to introduce statements made by other key co-conspirators, such as Zixiao “Gary” Wang and Nishad Singh, through various mediums including ledgers and notes. These records not only detailed the illicit movement of funds between Alameda and FTX but also aimed to obscure Alameda’s financial liabilities to FTX on its balance sheet.

Furthermore, these materials are viewed as statements of the defendant’s agents, as they were created within the scope of their agency relationships and facilitated the operations of the alleged conspiracy. This presents a significant challenge for the defense, as the prosecution argues that even if the documents may document legitimate business discussions, they remain relevant if they advance the interests of the joint venture, regardless of the venture’s intent.

Wang was the FTX co-founder, and Singh was the former FTX director of engineering. They both pleaded guilty to charges as those leveled against Bankman-Fried and are assisting in the investigations led by federal prosecutors.

Prosecution’s Strategy and Future Witnesses

Prosecutors also intend to leverage expert witnesses and employees from both FTX and Alameda. Additionally, former employees, customers, lenders, and investors of both FTX and Alameda are expected to testify, adding layers of perspective to the case. An expert witness will provide a financial analysis to help demonstrate the extent of the alleged fraud.

With Bankman-Fried currently in detention, his bail revoked due to allegations of leaking Ellison’s diary entries, the stage is set for a high-stakes trial. As the prosecution strategically pieces together its evidence, the trial in October promises to be a significant event in the world of cryptocurrency and financial law.

In a world where the boundaries between conventional finance and emerging technologies are still being defined, this trial is poised to have far-reaching implications, setting precedents for how the legal system grapples with complex financial schemes in the digital age.

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