Sam Bankman-Fried wasn\u2019t just <\/em>a crypto wunderkind, he was an ambassador for improving the world through effective altruism<\/a>. And if you were wondering how he squared those values with all the lying he allegedly did during his time at FTX, wonder no more: the answer is utilitarianism.\u00a0<\/p>\n<\/div>\n Lying and stealing were permitted, as \u201cthe only moral rule that mattered would be maximal utility,\u201d Caroline Ellison testified on her second day at Bankman-Fried\u2019s fraud trial<\/a>. I glanced over at his parents, Joseph Bankman and Barbara Fried, to see what they made of this;\u00a0both appeared to be busy scribbling into legal pads. In any case, the approach apparently worked for much of Bankman-Fried\u2019s life \u2014\u00a0right up to demanding doctored balance sheets for the company Ellison supposedly ran.\u00a0<\/p>\n<\/div>\n Bankman-Fried\u2019s cavalier attitude toward lying rubbed off on her, Ellison testified. Ellison choked up a little as she went on: \u201cWhen I started working at Alameda, I don\u2019t think I would have believed you if you told me I would be sending false balance sheets to our lenders, or taking customer money, but over time, it was something I became more comfortable with.\u201d Later, testifying about the days when the crypto hedge fund Alameda Research and exchange FTX fell, she cried.<\/p>\n<\/div>\n Ellison\u2019s second day of testimony delved into the collapse of Bankman-Fried\u2019s empire. Though she answered her questions with the attitude of a student trying to get an A in a difficult class, during court sidebars \u2014 where the lawyers bickered with each other in front of the judge and out of earshot of the rest of us \u2014 she slumped into herself, looking forlorn. She wore a gray blazer over a white v-neck blouse with black dots tucked into a black skirt, and she still didn\u2019t quite summon up the appearance of an executive. That made sense. The text messages we saw suggested she made few consequential moves without first consulting Bankman-Fried \u2014\u00a0not exactly a real CEO.<\/p>\n<\/div>\n The day picked up with Ellison discussing May 2022, when crypto markets entered freefall as the Terra\/Luna coins collapsed<\/a>. Amid the chaos, lenders started demanding their funds back. We saw Telegram chats with employees at Genesis, a crypto lender, which was asking Alameda to return its money. There was a tick-tock of Alameda getting its loans called by lenders across the board. In June, Bankman-Fried directed Ellison to repay the loans using FTX customer funds, she said.<\/p>\n<\/div>\n \u201cI was in sort of a constant state of dread at that point.\u201d\u00a0<\/p>\n<\/div>\n<\/div>\n Ellison knew this likely wasn\u2019t possible. FTX customer funds had been used to pay off those loans, she testified. If a large number of FTX customers withdrew all at once, the exchange wouldn\u2019t have the money. \u201cI was really stressed out,\u201d Ellison said. \u201cI was in sort of a constant state of dread at that point.\u201d\u00a0<\/p>\n<\/div>\n Bankman-Fried\u2019s defense lawyers seem to be teeing up the notion that the customer funds were still there, just in an investment portfolio. The problem is that putting those funds in an investment portfolio is still stealing the funds<\/em>. Crypto exchanges aren\u2019t banks; they don\u2019t lend out customer money. At least, the honest ones don\u2019t.<\/p>\n<\/div>\n During opening statements, the defense suggested that the failures at Alameda were Ellison\u2019s fault \u2014 and that Bankman-Fried acted appropriately given what he knew at the time. In order to prove fraud occurred, the prosecution must show that Bankman-Fried knowingly lied. And Bankman-Fried was cagey about what he put in print. He had the company set their Slack and Signal messages to disappear, resulting in a lot of blank Signal chats in previous court exhibits, and again today.\u00a0<\/p>\n<\/div>\n During opening statements, the defense suggested that the failures at Alameda were Ellison\u2019s fault<\/p>\n<\/div>\n<\/div>\n Ellison said he told her not to put anything in writing that she wouldn\u2019t want to see on the front page of The New York Times<\/em>. She violated that rule with a set of memos about their relationship. Later, Bankman-Fried would literally leak them to that paper<\/a>.\u00a0<\/p>\n<\/div>\n Still, it\u2019s impossible to run a business without documents. So today we saw a lot of documents that back Ellison\u2019s claims that she worked at Bankman-Fried\u2019s direction,\u00a0even if we didn\u2019t actually see his directions.<\/p>\n<\/div>\n Part of Ellison\u2019s job was pulling together balance sheets \u2014\u00a0by definition, writing something down. Alameda\u2019s original balance sheets included a row called \u201cFTX borrows,\u201d which she said marked the customer funds. She says she wanted to identify it \u2014\u00a0but didn\u2019t feel she could do so directly. That original balance sheet did contain $4.59 billion in related-party loans to Bankman-Fried, Gary Wang, Nishad Singh, and others. This is where the justified lying came in.\u00a0<\/p>\n<\/div>\n Alameda tried opening accounts using the IDs of \u201cThai prostitutes\u201d<\/p>\n<\/div>\n<\/div>\n In an attempt to \u201cconceal the things on our balance sheet we thought looked bad,\u201d Ellison says she made seven fake balance sheets to run by Bankman-Fried. The one we saw was dated June 19th, 2022. The \u201cFTX borrows\u201d and related party loans had vanished. Some of the money that Alameda had borrowed from FTX was put in long-term loans \u2014 a second lie on top of the first, since customers could withdraw at any time.<\/p>\n<\/div>\n The balance sheet Bankman-Fried chose made Alameda look less risky than it really was and hid the FTX funds, Ellison testified. She sent the balance sheet to a contact at Genesis, the crypto lender, the next day. That person replied that he\u2019d \u201cjust caught up with Sam btw\u201d and suggested that they stay \u201cin tight contact this week.\u201d She was asked to repay $500 million in loans because Genesis was \u201cbasically in the position where this is no longer a luxury.\u201d <\/p>\n<\/div>\n Ellison offered some other examples of Bankman-Fried\u2019s apparently casual attitude toward lying. For instance, when Alameda funds got stuck on two Chinese exchanges, Huobi and OKX, Bankman-Fried first tried using a lawyer to negotiate. When that failed, Alameda tried opening accounts using the IDs of \u201cThai prostitutes\u201d in order to create transactions that would get the funds back. We didn\u2019t get a lot of detail about that except that it didn\u2019t work, and I nearly expired from curiosity right there in the courtroom.<\/p>\n<\/div>\n Finally, Bankman-Fried directed the company to pay a bribe, over the objections of a Chinese employee, who Ellison says he told to \u201cshut the fuck up.\u201d Later, Bankman-Fried and another Alameda executive would mock that employee on Signal.\u00a0<\/p>\n<\/div>\n He also thought his famously wild hair was \u201cvery valuable\u201d<\/p>\n<\/div>\n<\/div>\n Ellison also testified that Bankman-Fried\u2019s famously slovenly personal appearance was an act of careful public relations. He wanted to project the image of a smart, competent, and somewhat eccentric founder. He found Twitter particularly valuable for controlling the narrative, she said. Bankman-Fried also made investments in Semafor and The Block, and considered investments in Vox and Forbes, she testified. (Ellison didn\u2019t testify to this, but Bankman-Fried\u2019s philanthropic foundation, Building a Stronger Future, awarded our sister website Vox a grant<\/a> for a reporting project.)<\/p>\n<\/div>\n \u201cHe said he believed in a very proactive approach to public relations,\u201d she said. He also thought his famously wild hair was \u201cvery valuable\u201d and had led to higher bonuses at Jane Street, she testified. In the courtroom, Bankman-Fried visibly shook while she said this. Though Ellison and Bankman-Fried initially had \u201cluxury cars,\u201d Bankman-Fried felt it would be better for his image to drive a Toyota Corolla, so he switched cars.\u00a0<\/p>\n<\/div>\n At least he did really sleep on a bean bag in the office, according to Ellison. This had been thrown into question by Bankman-Fried\u2019s college roommate in earlier testimony<\/a>.<\/p>\n<\/div>\n Because PR was so important to Bankman-Fried, when Bloomberg<\/em> was preparing a critical \u2014\u00a0and, it seems, prescient<\/em> \u2014 article about the ties between Alameda and FTX<\/a>, Bankman-Fried considered shutting Alameda down. Both Bankman-Fried and Ellison lied to the reporter to make the two companies sound more separate than they were. Also, to increase the appearance of separation, a venture fund was renamed to remove \u201cAlameda,\u201d even though that\u2019s where the money was coming from.<\/p>\n<\/div>\n In hand-written notes, Ellison outlined the problems with shuttering Alameda. Among them? Alameda\u2019s job was \u201cmarket making for shitty things\u201d \u2014 which was how Ellison referred to creating liquidity for thinly-traded assets. Plus, Alameda was a backup liquidity provider for FTX.<\/p>\n<\/div>\n \u201cIt was finally happening.\u201d<\/p>\n<\/div>\n<\/div>\n Ultimately, they did nothing.<\/p>\n<\/div>\n But Bankman-Fried was right to worry about reporters. On November 2nd, 2022, CoinDesk published an article presumably based on a version of Ellison\u2019s doctored balance sheet<\/a>. (I expect that if the reporter had seen insider loans, that might have been somewhere near the lede.) That kicked off a flurry of communication between Bankman-Fried and Ellison, which we saw because Ellison started preserving her messages. \u201cI was terrified,\u201d she said. \u201cIt was finally happening.\u201d<\/p>\n<\/div>\n Bankman-Fried thought the move was to make bold tweets, but he didn\u2019t want to do it. Instead, Ellison did \u2014 writing in her own words<\/a> a workshopped version of a tweet Bankman-Fried originally wrote, which began, \u201cHeh, I see *someone* is really trying to FUD us.\u201d<\/p>\n<\/div>\n Of course, then Changpeng \u201cCZ\u201d Zhao jumped into the mix, saying he wanted to liquidate his remaining FTX token, FTT. After a discussion on Signal with Bankman-Fried, Ellison responded<\/a> on November 6th that she would buy FTT at $22. An eventful <\/a>few days ensued<\/a>, which ended in Alameda\u2019s and FTX\u2019s bankruptcy.<\/a><\/p>\n<\/div>\n We saw a remarkable text from Ellison as the collapse was happening. \u201cThis is the best mood I\u2019ve been in a year tbh,\u201d Ellison messaged Bankman-Fried. It\u2019s not clear what date the screenshot came from, though Bankman-Fried was the source. Ellison cried looking at the messages. \u201cTo be clear,\u201d she said, \u201cthat was overall the worst week of my life. I had a lot of mood swings that week, and a lot of different feelings.\u201d<\/p>\n<\/div>\n One of those feelings was relief. The truth coming out was \u201csomething that had been in my mind every day,\u201d she said. The thing she\u2019d been dreading had happened and \u201cI didn\u2019t have to lie any more.\u201d She said she felt \u201cindescribably bad\u201d about all the people \u201cwho trusted us that we had betrayed.\u201d A court clerk passed her a tissue.<\/p>\n<\/div>\n Bankman-Fried was right. The things you put in writing can come back to bite you. Your awful ex-boyfriend<\/a> might leak your diaries to The New York Times<\/em>. In those notes \u2014\u00a0memos, really \u2014\u00a0Ellison discussed her concerns about her personal relationship with Bankman-Fried affecting their professional relationship. She felt like an unequal partner in their relationship. Today\u2019s evidence suggested that was certainly true in their professional life.\u00a0<\/p>\n<\/div>\n It also suggested something else: the things you put in writing can, potentially, save you. It\u2019s a lot harder to paint Ellison as the sole decision-maker when she\u2019s got contemporaneous evidence that she didn\u2019t make a move without running it by Bankman-Fried.<\/p>\n<\/div>\n<\/div>\n