The former head of the hedge fund has revealed to a judge that Sam Bankman-Fried and other FTX officials received billions of dollars in covert loans from the cryptocurrency mogul’s trading company Alameda Research when she pleaded guilty to her role in the collapse of the exchange.
According to a transcript of her Dec. 19 plea hearing that was unsealed on Friday, Caroline Ellison, the former CEO of Alameda Research, claimed she and Bankman-Fried agreed to conceal from FTX’s investors, lenders, and customers that the hedge fund could borrow an unlimited amount from the exchange.
According to the transcript, Ellison told US District Judge Ronnie Abrams in Manhattan federal court, “We prepared certain quarterly balance sheets that concealed the extent of Alameda’s borrowing and the billions of dollars in loans that Alameda had made to FTX executives and to related parties.”
Ellison and FTX co-founder Gary Wang both entered guilty pleas and, as part of their plea deals, agreed to cooperate with prosecutors. Their sworn declarations provide a sneak peek into how two of Bankman-Fried’s former associates would testify as prosecution witnesses against him in court.
In a separate plea hearing, also on December 19, Wang claimed that while he was aware that others were instructing invest, he was given the go-ahead to modify the code of FTX in order to grant Alameda unique access to the trading platform.
Wang however, made no mention of the source of such instructions.The prosecution’s case against Bankman-Fried will feature testimony from “multiple cooperating witnesses,” prosecutor Nicolas Roos stated in court on Thursday.
According to Roos, Bankman-Fried committed a “fraud of epic proportions” that cost customer and investor funds, billions of dollars.
Although Bankman-Fried admitted that FTX had poor risk management, he insisted that he did not think he was criminally responsible. He has yet to admit guilt.
He established FTX in 2019, riding the rise in value of bitcoin and other digital assets to become a millionaire and a significant contributor to US political campaigns.
FTX filed for bankruptcy on November 11 due to a wave of customer withdrawals early in No8vember amid worries over the mixing of FTX funds with Alameda.
Bankman-Fried, 30, was freed on a $250 million bond on Thursday. His representative declined to respond to the remarks made by Ellison and Wang.
Ellison testified in court that she and others agreed to borrow billions of dollars in FTX customer cash to repay investors when they called back loans they had made to Alameda in June 2022, knowing that customers were unaware of the agreement.”I am truly sorry for what I did,” Ellison said, adding that she is helping to recover customer assets.
Wang added that he was aware of the error of his ways.
In the beginning, the transcript of Ellison’s hearing was kept confidential because of concern that the authorities’ attempts to extradite Bankman-Fried from the Bahamas, where he resided and where FTX was based, could be thwarted by the revelation of her cooperation, according to court documents.
Bankman-Fried was detained in Nassau’s capital on December 12 and, after agreeing to be extradited, landed in the US on Wednesday.
As stated in a court order, Abrams withdrew herself from the action on Friday night.
Her husband is a partner at the law firm Davis Polk & Wardwell LLP, which advised FTX in 2021.
The judge stated that even though her husband had no involvement in these matters, which “were confidential and their substance is unknown to the Court,” she was recusing herself in order to avoid a potential conflict.
The firm also represented parties that could be adverse to FTX and Bankman-Fried in other proceedings.