- Sam Bankman-Fried said he was willing to destroy the world with a coin flip, Caroline Ellison said.
- She testified that SBF used the metaphor to illustrate his risk philosophy for Alameda investments.
Imagine, if you will, a coin.
If you flip it and get heads, the entire world improves by more than double.
If you get tails, the world is destroyed.
Sam Bankman-Fried said he would flip the coin — and urged everyone else to do so, too, Caroline Ellison testified in court Tuesday.
On the witness stand at Bankman-Fried's criminal trial, Ellison, the former CEO of his cryptocurrency hedge fund Alameda Research, said Bankman-Fried often talked about 50%-chance-of-apocalypse coin flip to illustrate his investment philosophy.
Bankman-Fried "described himself as truly risk-neutral," Ellison said, meaning he was completely comfortable taking risks as long as the average expected value of the bet was positive.
"He also talked about this in the context of thinking about what was good for the world, saying that he would be happy to flip a coin," Ellison testified Tuesday. "If it came up tails and the world was destroyed, as long as it came up heads the world would be like more than twice as good."
Bankman-Fried's love of shady coins, risky bets, and risky bets with shady coins have become central to his criminal trial, where he faces seven criminal counts.
Prosecutors allege Bankman-Fried defrauded customers and investors of FTX, his now-defunct cryptocurrency exchange, by siphoning their funds to Alameda Research, his cryptocurrency hedge fund, without their knowledge or permission.
So far in the trial, prosecutors have asked witnesses about Bankman-Fried's enormous appetite for risk and his high-wire act of borrowing enormous funds to make investments.
Aside from customer funds, Ellison testified in federal court on Tuesday, Alameda made its crypto bets using money from loans.
These loans — including from companies like the crypto trading firm Genesis — often had extremely risky terms, Ellison said. They allowed lenders to ask for their money back at any time, she testified.
Bankman-Fried directed Ellison and other employees of Alameda Research to get as many enormous loans as possible anyway, she said.
Ellison testified about a point in time in 2021 when Bankman-Fried wanted to spend $3 billion on venture investments. Those investments, Ellison said, would be difficult to sell, and the lack of liquidity could cause a problem if lenders wanted their money back. In addition, she said, Alameda Research already had around $2.7 billion in liabilities at the time.
"I assumed it would significantly increase the risk if we couldn't meet loan recalls," she said.
Bankman-Fried didn't seem too concerned, Ellison said.
"We assumed Alameda would use FTX customer funds to repay our loans," she said.
In media interviews, Bankman-Fried has said that, following FTX's apparent collapse in November of 2022, he could have made everyone whole if only he had more time.
In their opening statement for the trial, his attorneys said Ellison — who pleaded guilty to four criminal counts herself and is testifying as part of a cooperation agreement — should have heeded Bankman-Fried's instructions during the cryptocurrency downturn that year.
"He spoke to Ms. Ellison, the CEO, and he urged her to put on a hedge, something that would protect against such a downturn," Bankman-Fried's lawyer Mark Cohen said. "She didn't do so at the time, and this also becomes an issue later on, when the storm hit."
Bankman-Fried's appetite for risk extended to hiding the truth from investors, Ellison said.
He and other lieutenants — including Ellison — took tens or hundreds of millions of dollars of loans from FTX for their personal use, including personal investments. Ellison testified she believed that disclosing the loans to investors would alarm them.
"I didn't think we could get the money back if we needed it," she said Tuesday.
Bankman-Fried instructed her to keep the loans off of Alameda's balance sheets in 2021, which she prepared for investors to review, she testified.
"They made investing in Alameda significantly riskier," Ellison said.