Sam Bankman-Fried’s defense team failed to crack Caroline Ellison

At a glance

  • Now in its second week, Thursday’s court session in the criminal fraud trial of Sam Bankman-Fried was mostly taken up with the cross-examination of Caroline Ellison by Bankman-Fried’s defense team.
  • After being previously barred from discussing his venture capital investment in AI startup Anthropic, Bankman-Fried’s defense team appeared aimless in its questioning of Ellison.
  • Defense lawyer Mark Cohen gestured at Ellison’s trading decisions and threats to her leadership of Alameda Research, but didn’t drive home any straightforward reason for the jury to disbelieve her testimony.

The cross-examination of Caroline Ellison concluded around 3pm on Thursday, October 12, after hours of questioning by Sam Bankman-Fried’s defense team. It fell surprisingly short — Bankman-Fried’s lead lawyer Mark Cohen once again lapsed into a rote repetition of points already made by the prosecution, with only a few vague lines of attack emerging.

Ellison more than kept her composure throughout the cross-examination. It was bizarre to watch unfold, because the exact opposite had seemed so likely. Ellison is a key witness for the prosecution. This week she has detailed, accompanied by evidence, exactly how Bankman-Fried directed her to commit what she describes as crimes. Undermining Ellison’s credibility was widely considered crucial to any effort to plant seeds of reasonable doubt in the jury’s minds.

But Cohen seemed to visibly flounder in attempts to undermine the credibility of Ellison’s testimony. He came nowhere close to offering an alternate theory of what really happened to all that money: you could infer a few ideas if you’re already familiar with the case, but the jury didn’t seem to have much to sink its teeth into.

Bankman-Fried’s defense team can’t hit back at Ellison

Cohen opened by asking whether Alameda revenue and profits were held in the same infamous ‘fiat@’ bank balances as FTX customer deposits. The implied argument appeared to be that ‘not all the money (spent on random impulsive venture capital investments and lost on token gambling) was stolen.’

Cohen asked Ellison about Sam Trabucco, who served as co-CEO of Alameda for a time. This might have been meant to work towards the idea that Trabucco’s strange disappearance from the Alameda offices after late 2021 left Ellison in over her head as a solo CEO. The same can be said for Cohen introducing later moments when Sam proposed adding a second co-CEO, Ben Xie, and Ellison actually stood up for herself and told Sam no. 

The strategy here is, at best, to fundamentally confuse the issue. It does seem Alameda Research wasn’t very good at trading cryptocurrency, but that’s tangential to the core issue that they were doing it with customer funds. Given the broadly financially savvy jury, this obfuscation seems unlikely to be effective.

Read more: Sam Bankman-Fried used prostitutes in bid to unfreeze funds, says Caroline Ellison

Questions about accounting staff seemed intended to advance Cohen’s case that the FTX team was “building the plane in the air” and the only crime was being sloppy. But Ellison testified that FTX actually had one accountant on staff starting in 2021, and hired two more in 2022. That’s more accounting staff than I would have assumed myself, but it’s fuzzy to me what it accomplishes for the defense.

Another line of questioning seemed to blow up in the defense’s face. “Sam gave the ultimate direction” when it came to trading decisions at Alameda Research, Ellison said. Reporting about the FTX-Alameda relationship has been entered into evidence, so jurors have a sense that exactly this sort of interlocking influence is, at best, suspicious.

Ellison remains relatable and genuine in eyes of jury

In another moment of attempted misdirection, Cohen quizzed Ellison about Alameda’s use of loans from the likes of Voyager and Genesis. Cohen had Ellison specify that this sort of loan could be used for a wide variety of investments and expenses, clearly trying to muddy the distinction between contract-based commercial loans and the off-book plundering of customer deposits.

The pattern repeated itself on topics like the FTT token, whether it was smart for Alameda to invest in the Terra stablecoin (in hindsight, it wasn’t) and whether Caroline hedged enough as head of Alameda. Written self-assessments and internal management notes called Caroline’s capabilities and job performance into question.

Cohen didn’t particularly try to get under Ellison’s skin about these negative assessments, including from Bankman-Fried. He could have pressed her for details about her worries, probed her mindstate and stress levels, actually built a picture of Caroline Ellison as particularly inept or out of control. But she just doesn’t read that way on the stand, and the prosecution has managed to depict her as a bullied underling rather than a jilted lover. 

That might be why the defense wasn’t willing to really go at Caroline Ellison hammer and tongs. She seems so credible and relatable, despite her serious lack of spine when her ethics were really on the line, that a full-throated attack on her credibility could backfire by making the jury hate them.

Defense lost chance to introduce Anthropic stake

The defense also seemed occasionally underprepared on basic points. Cohen, for instance, mispronounced the name of Ryan Salame, a high-ranking FTX executive entangled with the political donations angle of the saga (it’s SAY-lem, not Sa-LAAM).

In fairness to their efforts, the defense team had been deprived of one possible — not to say particularly strong — line of questioning before even entering court this morning. Judge Kaplan ruled yesterday that the defense couldn’t discuss the recent performance of an investment in artificial intelligence startup Anthropic.

Read more: Caroline Ellison delivers the financial smut we’ve been waiting for

Kaplan quipped that it was like robbing the Federal Reserve, but arguing you did nothing wrong because you used the money to buy Powerball tickets.

“I certainly would never let in Anthropic,” Kaplan ruled with typical bluntness. “It’s unrepresentative. It’s meaningless.”

The next court session on Friday, October 13 is expected to introduce another member of Bankman-Fried’s inner circle, former FTX director of engineering Nishad Singh, to the jury. Protos will be in the courtroom hearing his testimony — expect a thorough update as usual.

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