NEW YORK, Dec 23 (Reuters) – Sam Bankman-Fried and other FTX executives received billions of dollars in secret loans from the crypto tycoon’s Alameda Research, the hedge fund’s former head told a judge when he pleaded guilty to his role in the exchange’s collapse. .
Caroline Ellison, former chief executive of Alameda Research, said she agreed with Bankman-Fried to hide from FTX investors, lenders and customers that the hedge fund could borrow unlimited amounts from the exchange, according to a transcript of his Dec. 19 plea hearing that was unsealed Friday.
“We prepared certain quarterly balance sheets that concealed the extent of Alameda’s loans and the billions of dollars in loans that Alameda had made to FTX executives and related parties,” Ellison told U.S. District Judge Ronnie Abrams in federal court in Manhattan, according to the transcript. .
Ellison and FTX co-founder Gary Wang pleaded guilty and are cooperating with prosecutors as part of their plea deals. Their affidavits offer a preview of how two of Bankman-Fried’s former partners could testify at the trial against him as prosecution witnesses.
In a separate hearing, also on Dec. 19, Wang said he was asked to make changes to FTX’s code to give Alameda special privileges on the trading platform, even though he was aware others were telling investors and clients that Alameda had no such privileges.
Wang did not specify who gave him these directions.
Nicolas Roos, a prosecutor, told the court Thursday that Bankman-Fried’s trial would include evidence from “several cooperating witnesses.” Roos said Bankman-Fried carried out a “fraud of epic proportions” that resulted in the loss of billions of dollars in client and investor funds.
Bankman-Fried has acknowledged lapses in risk management at FTX, but said she does not believe he is criminally liable. He has not submitted any allegations yet.
Bankman-Fried founded FTX in 2019 and rode a boom in the values of bitcoin and other digital assets to become a multi-billionaire as well as an influential donor to US political campaigns.
A flurry of client withdrawals in early November amid concerns about FTX’s commingling of funds with Alameda prompted FTX to file for bankruptcy on November 11.
Bankman-Fried, 30, was released Thursday on $250 million bail. His spokesman declined to comment on Ellison and Wang’s statements.
Lawyers for Wang and Ellison declined to comment.
Ellison told the court that when the investors in June 2022 recalled the loans they had made to Alameda, he agreed with others to ask them for billions of dollars in funds from FTX customers to repay them, understanding that customers were not aware of the agreement.
“I’m very sorry for what I did,” Ellison said, adding that he is helping recover clients’ assets.
Wang also said he knew what he was doing was wrong.
The transcript of Ellison’s hearing was initially sealed over concerns that revealing his cooperation could thwart prosecutors’ efforts to extradite Bankman-Fried from the Bahamas, where he lived and where FTX was headquartered, the court records.
Bankman-Fried was arrested in the capital, Nassau, on December 12 and arrived in the United States on Wednesday after agreeing to extradition.
A judge ordered him locked up at his parents’ home in California until his trial.
Reporting by Luc Cohen in New York Writing by Tom Hals in Wilmington, Del. Edited by Noeleen Walder and Matthew Lewis
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Luc Cohen
Thomson Reuters
Reports on New York Federal Courts. He previously worked as a correspondent in Venezuela and Argentina.
Tom Hals
Thomson Reuters
Award-winning reporter with more than two decades of experience in international news, focusing on high-stakes legal battles over everything from government policy to corporate deal-making.