Caroline Ellison Hires Ex-SEC Director As Legal Battle With Sam Bankman-Fried Looms
The former workmates, reported ex-romantic partners, and now, distant crypto chiefs are likely to converge in a court battle–adding a potential plot twist to the FTX contagion.
In the previous episode, this column covered how former Alameda Research CEO Caroline Ellison was recently spotted at the Ground Support Coffee on West Broad in SoHo Manhattan, disputing the rumors that she’s in Hong Kong.
READ: FTX Plot Twist: Is Ex-Alameda CEO Caroline Ellison Turning On Sam Bankman-Fried?
Now, recent reports seem to confirm the speculations surrounding Ellison’s resurfacing. The 28-year old former Alameda chief reportedly tapped two heavyweights of financial law from WilmerHale, a reportedly well-connected DC law firm.
The development comes in after Bahamas authorities have arrested and taken into custody former FTX chief Sam Bankman-Fried.
Ellison has hired former US Securities and Exchange Commission Division of Enforcement Director Stephanie Avakian and former federal prosecutor Anjan Sahni.
During her SEC stint, Avakian oversaw action against Ripple Labs, a blockchain business whose founders were accused of illegally obtaining $1.3 billion through an issuance of unregistered digital asset securities.
Meanwhile, Sahni was instrumental in leading investigations into accomplices of Bernie Madoff, the American fraudster who orchestrated the largest Ponzi scheme in history.
Tapping Avakian could be material for Ellison as the SEC recently formalized its charges of fraud against Bankman-Fried, alleging that the FTX founder knowingly ran the scheme and used Alameda as its vehicle from the inception.
When Ellison was spotted in New York, many theorized that she is likely cutting a deal and cooperating with South District prosecutors to roll on Bankman-Fried.
During his apology tour and in his supposed testimony at a House Financial Services Committee hearing, Bankman-Fried maintained that it was via “a large number of things” that went wrong for the FTX downfall to happen–seemingly, most of them are out of his control. He kept on distancing himself from Alameda.
“Because I was not running Alameda, I was not aware of some of the critical events at the time,” Bankman-Fried opened in the testimony transcript.
The former FTX chief then enumerated the events at Alameda that affected the solvency issue at the crypto exchange, including the change in economic environment and the failed hedge bets by the fund.
READ: “I Wish I Had Remained Grounded” And Other Highlights Of Sam Bankman-Fried’s Congress Testimony
Sources have said Bankman-Fried and Ellison were at times romantically involved–which the FTX founder confirmed although they are not in a relationship anymore. They added that while Ellison ran Alameda, Bankman-Fried was also active, contributing to important trade decisions, according to a source familiar with the company’s inner workings. There did not appear to be much of a barrier between the enterprises at times.
The whole debacle started with a Dirty Bubble Media report claiming FTX’s sister hedge fund, Alameda Research, is insolvent as most of its assets are tied to FTT and other tokens related to Bankman-Fried.
Ellison tried to refute the report, saying it is a balance sheet just “for a subset of our corporate entities” and therefore doesn’t reflect the entirety of the company.
But after FTX started to come crashing down, according to a person familiar with the situation, Ellison disclosed the cause of the collapse to Alameda staff. She apologized for disappointing the group. She claimed that in recent months, Alameda had taken out loans and utilized the proceeds to fund venture capital investments, among other things.
Ellison further explained that around the time the crypto market crashed this spring, lenders moved to recall those loans, according to a person familiar with the meeting. However, the funds that Alameda had spent were no longer readily available, so the company made the payments using FTX customer funds.
She said that, in addition to her and Bankman-Fried, two other people were aware of the arrangement: Director of Engineering Nishad Singh, and CTO Gary Wang.
READ: In A Nutshell: How FTX Fell From Grace, According To Sam Bankman-Fried Himself
Opposite Bankman-Fried–who goes around to appear to be explaining his non-culpability–Ellison seems to be going on a legal route and reportedly working with authorities to cut a deal.
The road taken by Ellison seems to be a smarter move. Bankman-Fried’s media tour–against the advise of his lawyers–seems to be doing more harm than good for him.
In a Twitter space touted “SBF First Crypto Appearance” by Mario Nawfal’s The Crypto Roundtable, Bankman-Fried was asked to expound on why there’s no more bitcoin to withdraw during the liquidity crunch of the bankrupt exchange. Co-host of the audio show Ran Neuner characterized the situation as customers having a hard time withdrawing their bitcoin balances because “bitcoin actually didn’t exist” on the platform.
“You’re just letting us buy notional tokens that didn’t actually really exist,” Neuner pushed.
Bankman-Fried agreed with Neuner, saying it is “another way of phrasing” what happened to FTX.
“Right, yeah, I believe that what you’re saying is in fact, part of what happened,” Bankman-Fried responded.
The commission also quoted Bankman-Fried in one of his barrage of interviews following the FTX implosion, saying he admitted the lack of risk mitigation measures in a recent December 1 interview.
“I wasn’t even trying, like, I wasn’t spending any time or effort trying to manage risk on FTX,” SEC quoted Bankman-Fried. “What happened, happened—and, if I had been spending an hour a day thinking about risk management on FTX, I don’t think that would have happened.”
The SEC is charging Bankman-Fried with two counts of fraud, asking the court to order him to pay disgorgement plus prejudgment interest of “all ill-gotten gains” and civil monetary penalties. The agency also requested to prohibit Bankman-Fried from issuing, purchasing, offering, or selling of any securities, including crypto asset securities–except that it should not prevent Bankman-Fried from purchasing or selling securities, including crypto asset securities, for his own personal account.
Information for this briefing was found via Daily Mail and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.