NEW YORK, Dec 23 (Reuters) – Sam Bankman-Fried and other FTX executives received billions of dollars in secret loans from crypto mogul Alameda Research, the hedge fund’s former chief told a judge as she pleaded guilty to her role in the stock exchange’s collapse.
Caroline Ellison, the former CEO of Alameda Research, said she agreed with Bankman-Fried to hide from FTX̵[ads1]7;s investors, lenders and clients that the hedge fund could borrow unlimited amounts from the exchange, according to a transcript of her Dec. 19 court hearing. released on Friday.
“We prepared certain quarterly balance sheets that concealed the extent of Alameda’s loans and billions of dollars in loans that Alameda had made to FTX executives and to related parties,” Ellison told U.S. District Judge Ronnie Abrams in Manhattan federal court, according to the transcript. .
Ellison and FTX co-founder Gary Wang both pleaded guilty and are cooperating with prosecutors as part of their plea deals. Their sworn statements provide a preview of how two of Bankman-Fried’s former associates may testify in the trial against him as prosecution witnesses.
In a separate appeals hearing, also on December 19, Wang said he was asked to make changes to FTX’s code to give Alameda special privileges on the trading platform, while aware that others were telling investors and clients that Alameda did not have such privileges.
Wang did not specify who gave him those instructions.
Nicolas Roos, a prosecutor, said in court Thursday that Bankman-Fried’s trial will include evidence from “several cooperating witnesses.” Roos said Bankman-Fried perpetrated a “fraud of epic proportions” that resulted in the loss of billions of dollars in customer and investor funds.
Bankman-Fried has acknowledged risk management failures at FTX, but said he does not believe he is criminally liable. He has not yet entered a plea.
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 customer withdrawals in early November due to concerns about the commingling of FTX funds with Alameda prompted FTX to declare 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 investors in June 2022 called off loans they had made to Alameda, she agreed with others to borrow billions of dollars in FTX customer funds to repay them, with the understanding that the customers were unaware of the scheme.
“I’m really sorry for what I did,” Ellison said, adding that she is helping to recover the client’s belongings.
Wang also said he knew what he was doing was wrong.
The transcript of Ellison’s hearing was initially sealed out of concern that revealing her cooperation could hinder prosecutors’ efforts to extradite Bankman-Fried from the Bahamas, where he lived and where FTX was based, court records showed.
Bankman-Fried was arrested in the capital Nassau on December 12 and arrived in the US on Wednesday after agreeing to extradition.
A judge ordered him confined to his parents’ home in California until his trial.
Reporting by Luc Cohen in New York Written by Tom Hals in Wilmington, Del. Editing by Noeleen Walder and Matthew Lewis
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Reports of the Federal Courts of New York. Has previously worked as a correspondent in Venezuela and Argentina.
Award-winning reporter with more than two decades of experience in international news, focusing on high profile legal battles over everything from government policy to corporate deals.