In federal court this week, Caroline Ellison, the former CEO of Alameda Research, testified against her former boss and boyfriend, Sam Bankman-Fried. His two fallen crypto enterprises offer an object lesson in how not to run a start-up.
First, here are four new stories from The Atlantic:
“How would you describe the power dynamic of your personal relationship with the defendant?” a prosecutor asked Caroline Ellison in court on Tuesday. Sam Bankman-Fried’s lawyers immediately objected to the question, and the judge sustained the objection. But all of us watching Ellison’s testimony in the federal courthouse heard the question. It hung in the air even as the prosecutor rephrased the inquiry.
At this point, FTX is many things: a company whose founder is on trial; a symbol for the rot underlying the crypto ecosystem; a target of schadenfreude. But before its dramatic implosion, it was also a workplace run by Millennials. And it seems, to hear Ellison describe it, to have been an absolute shitshow. In addition to the fraught power dynamics that came with various leaders’ personal ties, the company relied on shoddy recordkeeping (some of it intentional, Ellison said, to obscure the reality of their financial situation; some of it just apparently sloppy, like using emoji for expense approvals). FTX is an object lesson in how not to run a start-up—featuring major trip wires of the tech industry, including ambiguous responsibilities, disorganization, and hubris. And, of course, the trouble went far deeper: Bankman-Fried, Ellison testified, presided over a culture where lying and stealing were acceptable.
In her testimony, Ellison described Bankman-Fried as a relentless boss who orchestrated extravagant gambits, often from just offstage. Yesterday, Ellison, who is testifying as part of a plea deal, described a somewhat harebrained FTX scheme to convince Chinese officials—with what Ellison believed was “a large bribe”—to unlock an account. One FTX employee, whose own father was a Chinese government official, had protested. Bankman-Fried “yelled at her to shut to fuck up,” Ellison said. Bankman-Fried professed a belief that the only moral rule worth following was that of maximizing utility to create maximum good, Ellison testified. “It made me more willing to do things” like steal, she said, adding that if you had told her when she started working at Alameda that she would soon be preparing doctored balance sheets for lenders or using customer funds, she wouldn’t have believed you. The firm’s culture seemed to have a warping effect on the people who worked there. Many quit before FTX’s collapse; even some of those who stayed loyal to Bankman-Fried are now cooperating with the government.
To be clear, Ellison made choices that led her here: She has pleaded guilty to several federal crimes. But hearing her testify, I got the sense that it was not always pleasant to be Ellison in the FTX work environment. Though she held a lofty title when FTX imploded—CEO of Alameda—she claims that Bankman-Fried continued to call the shots, even after giving up the title himself in part to avoid perceptions that he had conflicts of interest. Ellison said that when she was promoted from trader to co-CEO of Alameda, her salary stayed the same, at $200,000. She was eligible for bonuses, and sometimes received large ones. But though she says that she asked for it, she was not granted equity, or an ownership stake, in Alameda. (She says she did have equity in FTX.). Ellison received a fraction of the compensation that other top FTX executives did. (A lawyer for Ellison did not immediately respond to a request for comment. A spokesperson for Bankman-Fried declined to comment.)
Ellison is obviously not a typical woman in tech, given her admissions of fraud. But it seems she did face some measure of the professional and personal disrespect that is rampant for women in the industry. And Bankman-Fried doesn’t seem to be taking her all that seriously in the courtroom, either: Yesterday, in a sidebar with the judge and defense lawyers, a prosecutor complained that Bankman-Fried was laughing and scoffing while Ellison spoke, and that she was concerned this would have an effect on the witness given “the power dynamic, their romantic relationship.” Though a defense lawyer called this claim “ridiculous,” he agreed to talk with the defendant.
FTX was operated by a very ambitious group of friends in their 20s and early 30s, and the company’s operations sound chaotic. Ellison was just a few years out of college when she was making spreadsheets—peppered with internet-speak—outlining the flow of billions of dollars. In a spreadsheet she said she had shared with Bankman-Fried, she calculated the probability of “v bad FTX news” that might affect the business. (Ellison and I attended the same college for a couple of years, and overlapped on a study-abroad program, though I don’t recall meeting her.)
Ellison testified under a cooperation deal, so she stands to benefit if the prosecution finds her helpful. Indeed, her testimony seemed brutal for the defense. “[Bankman-Fried] was originally the CEO of Alameda and then the owner of Alameda, and he directed me to commit these crimes,” she said bluntly at one point. At the crux of the case is whether Alameda stole customer funds from FTX and lied about it. Ellison has testified in no uncertain terms that Alameda did this, and at Bankman-Fried’s direction. Ellison’s cross-examination began late yesterday; more details, including ones that may undermine the government’s case, will emerge in the coming days. But many of the details now on the record about FTX as a workplace are, if not criminal, extremely unflattering.
Ellison and Bankman-Fried shared a close working relationship, and a close personal one. In many workplaces, dating a superior is forbidden, or at least discouraged. But at FTX, which had an in-house psychiatrist but an apparently dysfunctional HR operation, this did not seem to be the case. The fact that the two dated is not just tabloid fodder; it’s also pertinent to understanding the case against FTX, Yesha Yadav, an expert on financial regulation at Vanderbilt Law School, told me over email. “The romance offers insights into the lack of functional separation in practice between Alameda and FTX—meaning that SBF was aware of what was happening at Alameda, potentially controlling it, even if he has contested otherwise,” she said. “The closeness and romance can carry considerable evidentiary weight.” It will be up to the jury to determine whether Ellison and other witnesses are credible. And the big question of whether Bankman-Fried himself will speak remains. As Yadav reminded me, “In a criminal trial, only one juror needs to hold out for the case to fall.”
- Secretary of State Antony Blinken visited Israel in a strong show of support as part of a diplomacy tour around the region.
- Democratic Senator Bob Menendez faces a new indictment, including a fourth charge that alleges that he acted as an unregistered agent for the Egyptian government.
- ACT scores in the United States have dropped to a three-decade low.
What Happened to Empathy?
By Xochitl Gonzalez
San Francisco, I realized during a visit to the city this spring, has a people problem. Not a homeless-people problem, or a tech-people problem, but a lack-of-people problem. As I walked from my hotel in SoMa to the Embarcadero on a sunny afternoon, the emptiness of the streets felt nearly apocalyptic. Passing other humans—a fundamental circumstance of urban life elsewhere—here was so rare, it felt oddly menacing. I did pass some people who looked unwell, or dirty from living on the streets, but that’s not why I felt the way I did. The volume and density of humanity are what make cities feel safe. The pleasure and pain of a city is that we are never alone, even when we desperately want to be. That wasn’t the case in San Francisco.
So I was bewildered when I read recently of the city’s experiment with driverless taxicabs. During that visit, I stepped over two people who appeared to be high on fentanyl, stepped past too many boarded-up storefronts to count, and literally stepped into human excrement. Engaging with my living, breathing (and sometimes chatty) taxi and Uber drivers was absolutely the least of my troubles in San Francisco.
Read the full article.
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Ellison, answering questions during her testimony in the no-nonsense, decisive manner of a graduate student leading office hours, shared several memorable anecdotes about Bankman-Fried. She said that Bankman-Fried carefully cultivated his image, plotting his hairstyle and car choices to maximize positive public perceptions. He has apparently said that if he could flip a coin, with one side causing the destruction of humanity and the other causing the world to become “more than twice as good,” he would do it. Ellison testified that Bankman-Fried had told her there was a 5 percent chance he would become president. Of what? a lawyer asked. “Of the United States,” she clarified.
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Katherine Hu contributed to this newsletter.
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