Former FTX CEO Sam Bankman-Fried Accused of Directing Fraud and Money Laundering
Former crypto mogul Sam Bankman-Fried, the CEO of FTX, is currently on trial for allegations of fraud and money laundering. Testimony from Caroline Ellison, the former CEO of Alameda Research, has shed light on Bankman-Fried’s questionable actions.
The $2 Billion Venture Fund
In January 2022, Bankman-Fried announced the launch of a $2 billion venture fund called FTX Ventures. The goal was to support other founders in creating successful companies. However, instead of raising capital from external investors, Bankman-Fried used money from third-party lenders like Genesis Global Capital, which had originally gone to Alameda Research.
Allegations of Fraud and Money Laundering
According to Ellison’s testimony, Bankman-Fried directed her to commit fraud and money laundering crimes. She claimed that Bankman-Fried wanted to invest an additional $3 billion into early-stage companies and asked her to assess the financial risks. Ellison found that this would put Alameda in a riskier position and make it unlikely or impossible to pay off its loans if they were called all at once.
Ellison shared her concerns with Bankman-Fried and suggested alternative scenarios, such as raising more equity, investing less in ventures, or selling more FTT (FTX’s crypto token). Bankman-Fried requested that she run the numbers again assuming that all of Alameda’s loans from Genesis were fixed-term. While Ellison was able to change some loans to fixed-term, the majority remained open-term, which increased the risk for Alameda.
If there were to be a market downturn with Alameda’s mostly open-term loan structure and $3 billion in investments, Ellison estimated that the probability of Genesis recalling its loans would be 25%. This would result in Alameda being unable to make the loan payments, even accounting for the unlimited line of credit and access to FTX customer funds.
In the end, Bankman-Fried decided to invest $2 billion into venture investments backed by FTX instead of LPs. The result was the same, as the funds were still sourced from third-party lenders.
Ellison’s testimony and cross-examination will continue on Wednesday as the trial unfolds.