Caroline Ellison, Star Witness in Sam Bankman-Fried Trial, Says He Made ‘Terrible Mistakes’

A lawyer for Sam Bankman-Fried on Thursday sought to undermine the testimony of Caroline Ellison, the prosecution’s star witness in his criminal fraud trial, as she continued to insist that the onetime crypto mogul was behind the misuse of billions of dollars in customer money at his FTX exchange.

Over about five hours of cross-examination, Mr. Bankman-Fried’s defense lawyer, Mark Cohen, questioned Ms. Ellison about her decision to cooperate with prosecutors in return for leniency. He also asked her about a document she sent to employees at Alameda Research, the crypto trading firm she ran for Mr. Bankman-Fried, which had painted a rosier picture of the firm’s finances than she had described in private.

But Mr. Cohen didn’t elicit any major revelations or inconsistencies from Ms. Ellison, 28, who adhered to her previous testimony that she followed orders from Mr. Bankman-Fried about letting Alameda tap into FTX customer funds.

“I think they were terrible mistakes,” she said of Mr. Bankman-Fried’s decisions in the summer of 2022, which ultimately led to the collapse of FTX and Alameda Research.

A week into Mr. Bankman-Fried’s trial, Ms. Ellison has emerged as the strongest witness against him. In a little over two days of testimony in federal court in Manhattan, she told a jury that Mr. Bankman-Fried, 31, knew for months that Alameda’s finances were in a precarious state and that the firm would be hard pressed to pay back most of the $10 billion it had borrowed from FTX customers.

Ms. Ellison ran Alameda and dated Mr. Bankman-Fried on and off. After FTX and Alameda failed in November, federal prosecutors charged Mr. Bankman-Fried with funneling billions of dollars in FTX customer deposits to Alameda, and then spending the funds on political donations, real estate purchases and other projects. He became a symbol of hubris and reckless risk taking across the crypto industry.

Ms. Ellison and two other high-ranking FTX executives, Gary Wang and Nishad Singh, later pleaded guilty to fraud and agreed to cooperate with the government.

Ms. Ellison, who was on the witness stand for a third day, has offered some of the most raw and emotional testimony of the trial. On Wednesday, she fought back tears as she described the implosion of Mr. Bankman-Fried’s companies, saying part of her felt relieved that she wouldn’t have to lie anymore to conceal that Alameda owed billions of dollars to FTX’s customers.

Under questioning from Mr. Cohen, Ms. Ellison conceded that she sent a misleading document to Alameda employees last year that presented a more bullish version of the trading firm’s performance than she had discussed with Mr. Bankman-Fried.

“Yeah I would say it was misleading about the true state of Alameda in this document,” she testified.

But Ms. Ellison said she did that to keep up the morale of Alameda employees at a time when the crypto market was under widespread stress.

Ms. Ellison also said that after Mr. Bankman-Fried put her in charge of Alameda in 2021, he didn’t get involved in many of the firm’s major decisions. When a prosecutor followed up, she said Mr. Bankman-Fried got more involved in Alameda by spring 2022 and that he decided to tap into FTX customer money to pay back lenders of the trading firm.

Under questioning by Mr. Cohen, Ms. Ellison also said that despite her concerns, she didn’t resign from Alameda. But when questioned again by a prosecutor, she said she had seriously considered resigning in the months before the firms imploded and that Mr. Bankman-Fried talked her out of it.

“I trusted his opinion and I didn’t want FTX and Alameda to collapse, and if he thought my resigning might cause that, I didn’t want to do that,” she said.

Mr. Cohen also focused on the events surrounding Ms. Ellison’s decision to plead guilty and cooperate with prosecutors and her concerns about Alameda using FTX customer money.

Ms. Ellison said that F.B.I. agents showed up at her parents’ home last November after FTX and Alameda went under. Ms. Ellison said the agents had a search warrant that allowed them to take computers that belonged to her boyfriend, who was staying with her at the time; and her mother, Sara Fisher Ellison, an economist at the Massachusetts Institute of Technology. She didn’t name her boyfriend but said he had worked for Mr. Bankman-Fried’s businesses.

In all, Ms. Ellison said she had around 20 meetings with prosecutors, including one that lasted for several hours on Monday, the day before she took the witness stand.

Ms. Ellison also said that despite her concerns about Alameda borrowing billions of dollars in FTX customer money, she never talked about it with anyone other than Mr. Bankman-Fried, Mr. Wang and Mr. Singh.

At times, Ms. Ellison’s testimony this week devolved into a war of attrition between Mr. Cohen and the prosecutors. The lawyers have had several conversations with the judge that the jury could not hear to discuss the admission of some exhibits.

In one conversation on Wednesday, Danielle Sassoon, an assistant U.S. attorney, said she noticed Mr. Bankman-Fried had “laughed, visibly shaken his head, and scoffed” at various points during Ms. Ellison’s testimony. Ms. Sassoon speculated it might be “having a visible effect on her,” according to a trial transcript.

Judge Lewis A. Kaplan, the judge presiding over the trial, said he didn’t see what Ms. Sassoon had referred to so he wouldn’t make any comments to the jury. But the judge told Mr. Bankman-Fried’s lawyers to privately tell their client that if he was making any visible expressions, he should stop.

Christian Drappi, a former developer at Alameda, took the stand after Ms. Ellison finished on Thursday afternoon. During his testimony, the prosecution played an audio recording of an “all-hands meeting” at which Ms. Ellison told Alameda employees about the use of FTX customer funds and the firm’s imminent collapse.

The turn of events left Mr. Drappi “utterly shocked,” he said.