Judging Sam: Ellison Testimony Wraps Up

Pushkin.

Hey there, it's Michael Lewis. Before we get to this episode, I want to let you know that you can listen to each episode of Judging Sam The Trial of Sam Bankman Freed ad free by becoming a Pushkin Plus subscriber, and with your subscription you'll also get exclusive access to ad free and early bingeable podcasts like Paul McCartney's new podcast, McCartney A Life and Lyrics, Malcolm Gladwell's revisionist history, The Happiness Lab from Doctor Lorie Santos, and tons of other

I'm Jacob Goldstein, sitting in once again for Michael Lewis. I'm an economics reporter. I covered crypto for a long time and I also host a Pushkin show called What's Your Problem, where I once interviewed Sam Bankman Freed. This was back before he got indicted. Earlier this week, I was here on the show talking to our court reporter Lydia Jean Cott about Caroline Ellison's first day in court. Caroline Ellison, as you probably know already, is the former

More right, yeah, lived a lifetime.

And so Lydia Jen, we have this list of things to get through and it's a lot, right, there has been a lifetime of the trial. The list includes, but is not limited to, balance sheets. Of course, very excited about that, an alleged Chinese bribe, utilitarianism, and cross examination. Let's start with the balance sheets.

Yes, the balance sheets. So in Caroline's testimony, she talked about how in June twenty twenty two, there were a lot of lenders who wanted to take their money out from Alameda, which is this trading firm which used money from lenders to trade.

Okay, and June twenty twenty two, just for context, this is when the crypto market is blowing up, going down, whatever bad things happening metaphor you.

Want yes, And she talked about how during this downturn, one of their lenders, Genesis, asked for a balance sheet.

When you say asked for a balance sheet, what does that mean?

They wanted to know what Alameda's financial situation was.

Okay, God, they wanted to see alameda balance sheet, their assets, their liabilities, et.

Cetera, a quick and dirty overview of how they're doing. Okay, but they were not doing well because the lenders had withdrawn their money and they also had a lot of debt to FTX, which is the alleged crime here that they had been taking money from FTX customers.

Right, So, assuming all that's true, if Alameda showed a real balance sheet to Genesis, that was this lender, that would have been a problem for Alameda exactly.

So what Carolyn did is she made one balance sheet, which was an accurate balance sheet that she would normally make and then she made seven options of other ways to present that information, and she shared it with Sam.

Okay.

And when you say other ways to present that information, like, there's a version of that that is shady or potentially illegal, and another version of that's like no, just accountants can do things different ways. What are we talking about here when you say seven versions, Let me explain.

To you the version that they signed, which was version seven. Ok In version seven, the money that Alameda owed to FTX was put in a section called long term loans. That was one of the biggest changes. Okay, and Caroline testified that this was misleading because the customer funds were not long term loans because the customers could withdraw their money at any time, ah, which actually met Alameda was in a riskier position than this balance sheet suggested.

Right, So never mind the fact that they weren't mentioning that they're borrowing FTX customer funds. There's just the fundamental sort of liquidity, right, These are essentially overnight loans. They're demand they're not really loans, but it's money that could disappear at any time. So yes, that makes sense. And then what was you know, obviously, Caroline is not on trial here. SBF is on trial here. So what was the SBF piece of this balance sheet testimony?

The fact that he.

Looked at all of these balance sheets and then told Caroline which one to use is what she testified, and that means that he knew that Alameda was using FTX customer funds because the first real balance sheet showed that, and then he saw seven different versions obfuscating that information and then told her to use number seven.

Uh huh seems compelling to me. I mean, did it play as compelling in court? Do you find it compelling?

I find it compelling, and I do think it played as compelling in court.

Okay, so that's balance sheets. You can check that off our list. Alleged bribe of Chinese officials. Different vibe, kind of international vibe. At least tell me about that one. That one was somewhat new to me. I read about it a little bit this week, but I hadn't read that much about that one before.

It's probably new to you because that's not actually a crime that Sam is being charged with this trial. The story that Caroline told is that Alameda had a bank account in China that was frozen because of an investigation that was going on. Basically, Sam Makman, Freed, and other executives at FTX and Alameda were trying to figure out how to get the money out okay, And in the end they decided, after trying various other ways, that the best thing to do would be to bribe a Chinese

Okay, Wow, that is kind of intense. Let me ask you one question. I mean, I don't recall this being a crime that Sam, or as far as I know, anyone has been charged with, right, So if that's the case, why are prosecutors having Caroline testify about So why is she even allowed to.

Talk about it?

Yeah, this crime is not part of this specific case, but prosecutors have argued that Caroline should be allowed to talk about it because it shows how close Sam and Caroline were and that Sam trusted Caroline and that here's an example of her being a trusted confidant of his. Part of the things that Sam is being charged with is conspiring with Caroline because in the end, she was the person who wired money to these bank accounts of Chinese officials.

Uh huh at his direction, presumably, as she kept saying, presumably at his direction. Okay, next on the list, And I'm excited for this one. Utilitarianism. We talked about this. It actually comes up a ton right with SBF. We talked about it the other day where there was a thing about like he would flip the coin, where if it came up one way, the universe would be twice as good, and if it was the other way, the universe would be destroyed. Right, it's this really central guiding

Yes.

She talked about how Sam is a utilitarian, which means that he believes in trying to do the maximum amount of good for the maximum amount of people, but how in this framework other rules that are laws that people live by aren't really as important, laws such as don't

For example.

This is, as we talked about the other day, a pretty high drama situation, right Like Caroline Elison was like very top lieutenant, also romantically involved with Sam. Sam is sitting right there in court. She's talking about their relationship in many different ways, like what has that part of it? This sort of emotional part of it, what has that been like?

There was one moment when Caroline teared up, which was when the prosecution asked her about the week that FTX imploded and her reaction to it, how she felt while that was happening, and she said it was the worst week of her life, and then she cried around the time where she was talking about how at the same time though, she also felt a sense of relief because she felt like she finally wouldn't have to lie anymore and she could begin to take responsibility for her actions.

But it was a difficult moment, and.

Could you see SBF? Could you see what he was doing or how he was responding At that.

Point, I was so focused on Caroline. But I asked other reporters and they said, you know, as I've said earlier, it's really hard to see his face based on how he's sitting. But they said it looked like he was just looking straight ahead at his laptop and continuing to type.

So then the prosecution wrapped up their questioning of Caroline and the defense had their turn to cross examine her. Tell me about that part.

I think everyone was really curious to see how the defense was going to cross examine Caroline because her testimony was so compelling, but their cross examination ended up being really halting. The judge interrupted them, interrupted the defense lawyer, saying that he was being repetitive. There were numerous side panel conversations during the cross examination. The defense lawyer honestly

Huh, that's really interesting. The last time we talked, you had talked about the cross of the previous witness being really compelling and raising interesting doubts and so sort of surprising that this one seems so weak to you.

I wondered if the defense was trying to be more gentle with Caroline, because you know, she had just cried the day before I was wondering about the optics. But the takeaway is that we just ended up feeling confused and not really sure what the defense was.

So we've just heard from what seems like the prosecution's star witness. The defenses had its chance to cross examiner. When you sort of look at the picture in total, what do you see?

It feels like it couldn't have gone better for the prosecution. When we were walking out of the courtroom after Caroline had testified, I overheard lots of people talking about how Sam reminded them of bad ex boyfriends that they had and how they were surprised by how much they felt for her. So I think the prosecution really did their job here.

Okay, we'll be back in a minute with one last thing. And now, as promised, we are back and we have one last thing. I mean, I don't have one last thing. Lyddy Jeene, do you have one last thing?

I do have one last thing. And it felt like a real last thing because it seemed like the day in court was winding down. The jury was let out for a short break, and then the defense and prosecution got into this impassioned argument about whether they could play some audio clips in the trial.

Ooh, do tell yes.

So these audio clips come from a meeting that happened in November twenty twenty two. FTX had basically imploded and Caroline was going to have a meeting for Alameda staff to kind of explain what happened. And they were going back and forth about whether the judge should allowed some audio clips from this recording. And it was very heated and Sam's parents, I noticed, were also really invested. Sam's

And did they play them.

Yes. The prosecution brought up a witness.

He was an engineer at Alameda and he was at this all hands meeting and he talked a little bit about the recording. He explained that it was secretly recorded by someone who had just been hired three days earlier, which I was thinking is pretty crazy.

Imagine the third day of your job.

Welcome to Alameda.

Yeah, And he set the scene a little bit. He described how Caroline was sitting on a bean bag chair, and she looked shrunken, and other people were kind of sitting around her on sofas, and she basically just explained exactly what happened. She said that Alameda had been using FTIX customer funds they made ill liquid investments. Now FTX customers wanted their money back and they didn't have it, And as you might guess, Alameda employees had a lot of questions about this.

I've been to all staff meetings, but I never quite like that.

The engineer, for instance, you can hear him on the tape, and he was asking how did this happen? He said, I'm paraphrasing here, I'm assuming you had meetings and that this wasn't just a YOLO thing. And they had a little aside where they explained what yolo stands for once, and Carolyne said that Gary Wong Nishad saying Sam bankmin

Uh huh.

So that's the moment, rights the that's it.

And this is a big moment because this is her on tape saying that Sam had authorized this, and this is before there was an investigation into FTX. She was not a cooperating witness. She hasn't been charged with anything, so she doesn't have as much motivation as she did during her earlier testimony to be pointing the finger at Sam.

So, Caroline Ellison already a lot of drama and then we have a secret recording drama on top of drama. Thanks LYDIGI, thank you.

So much, Jacob.

On our next episode, I check in again with Michael Lewis.

I'm here and so I'm in the rain in London on the street. But it's killing me that I can't see this. What I'm find is, generally is that the things are coming up that I just left out of the book because I thought they were sort of less important and they didn't really tell the story. And there are things that are interesting but sort of fit with the characters. My little private goal is for the characters

Sam as I'm talking he is.

This episode of Judging Sam was hosted by Jacob Goldstein. Lydia Gencott is our court reporter. Katherine Girardeau and Nisha Venken produced this show. Sophie Crane is our editor. Our music was composed by Matthias Bossi and John Evans of stell Wagons Symphonette. Judging Sam is a production of Pushkin Industries. Got a question or comment for me, There's a website for that atr podcast dot com. That's at r podcast