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.

Alternative Scenarios

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.

The Consequences

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.

The Outcome

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.