FILE PHOTO: Former crypto hedge fund Alameda Research CEO Caroline Ellison finds and points out Sam Bankman-Fried during Bankman-Fried's fraud trial over the collapse of FTX, the bankrupt cryptocurrency exchange, at Federal Court in New York City, U.S., October 10, 2023, in this courtroom sketch. REUTERS/Jane Rosenberg/File Photo
NEW YORK (Reuters) -Caroline Ellison, the former co-head of Sam Bankman-Fried's hedge fund, testified at his fraud trial on Wednesday that he had her falsify the firm's financial statements to keep a major lender at bay amid a downturn in cryptocurrency markets in 2022.
Ellison, the former co-chief executive of Alameda Research, said that as some lenders demanded repayment, Bankman-Fried told her to come up with "alternative ways" to present the firm's liabilities to keep more loans from becoming due.
"I understood him to be directing me to conceal things in our balance sheet that we thought looked bad," she said.
Bankman-Fried had her send lender Genesis Global Capital a balance sheet concealing that Alameda had borrowed around $10 billion in customer funds from the FTX cryptocurrency exchange, she said.
Prosecutors say Bankman-Fried plundered billions in customer funds to prop up Alameda, buy real estate and donate more than $100 million to U.S. political campaigns before FTX declared bankruptcy in November 2022 following a collapse that shocked financial markets and left his reputation in tatters.
Earlier on Wednesday, Ellison testified that Bankman-Fried instructed her to draw from the fund's line of credit on the FTX cryptocurrency exchange to repay loans in June 2022.
As cryptocurrency prices plummeted and the value of Alameda's assets dropped, Ellison said her awareness that the funds used to repay loans were ultimately coming from FTX customers put her in a "constant state of dread."
"Every day I was worrying about the possibility of customer withdrawals at FTX," she said.
She is one of three former members of Bankman-Fried's inner circle who have pleaded guilty to fraud charges and agreed to cooperate with the Manhattan U.S. Attorney's office.
The 28-year-old Stanford University graduate told jurors on Tuesday that Bankman-Fried, her former boss and sometime romantic partner, shrugged off the risk of Alameda's lending and investment strategies, which relied on loans from crypto lenders who could demand repayment at any time.
"He described himself as truly risk-neutral," whereas most people saw themselves as risk-averse, she said.
Bankman-Fried has pleaded not guilty to two counts of fraud and five counts of conspiracy, 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 that Bankman-Fried falsely tweeted that FTX was "fine" in November as the exchange faced surging demand for withdrawals. 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.
(Reporting by Jody Godoy and Luc Cohen in New YorkEditing by Noeleen Walder, Nick Zieminski and Matthew Lewis)
