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Business partners turn on Sam Bankman-Fried

New York

The stunning collapse of one of crypto’s most prominent firms has quickly turned into a legal battle pitting former executives and former romantic partners against each other.

Last week, when FTX founder Sam Bankman-Fried was extradited to the United States from the Bahamas, two of his former business partners pleaded guilty to multiple charges of fraud and conspiracy.

Caroline Ellison, the 28-year-old former CEO of crypto hedge fund Alameda, apologized before a federal judge in New York, saying she and her former associates knowingly stole billions of dollars from clients of Bankman-Fried’s FTX exchange and attempted to cover it up, according to court transcripts.

“I am truly sorry for what I did,” Ellison told the court. – I knew it was wrong.

Ellison told the court that Alameda had a virtually unlimited loan facility in FTX, and that she knew the exchange would need to use customer funds to finance loans to the hedge fund. She also agreed to keep the two firms’ unusually close relationship hidden from investors and clients.

From July to October, she told the court, Ellison agreed with Bankman-Fried and others to provide “materially misleading financial statements to Alameda’s lenders,” and prepared balance sheets that hid the extent of Alameda’s loans.

Ellison has been charged with seven criminal counts, including conspiracy to commit wire fraud and money laundering. She and Bankman-Fried were close business associates who dated briefly.

Another employee, Gary Wang, FTX’s former chief technology officer, pleaded guilty to four counts of similar charges.

Wang told the court that part of his role at FTX included making changes to the exchange’s code that would give Alameda “special privileges” at FTX.

“I knew what I was doing was wrong,” he said.

Both Ellison and Wang are cooperating with federal prosecutors, making them potentially damning witnesses against Bankman-Fried, who have repeatedly denied intentionally defrauding clients and investors.

Bankman-Fried, 30, appeared Thursday in a US courtroom in New York, where a federal judge released him on a $250 million bond. He is ordered to surrender his passport and remain under house arrest at his parents’ home in Palo Alto, California.

Although $250 million is an extraordinary sum, Bankman-Fried does not have to pay it unless he violates the terms of his bail agreement or fails to appear in court. The atypical bail plan was accepted as part of his commitment to drop the extradition fight.

After his appearance in court, Bankman-Fried was spotted in a business class lounge at John F. Kennedy International Airport in New York. Crypto reporter Tiffany Fong also tweeted a photo showing Bankman-Fried on an American Airlines flight.

Bankman-Fried’s legal team confirmed to CNN Business that he had arrived in Palo Alto and was at home with his parents. His attorney declined to comment on the guilty pleas by Ellison and Wang.

The federal judge said Thursday that Bankman-Fried will stand trial on eight criminal counts, including fraud and conspiracy, at an unspecified future date.

Prosecutors allege that Bankman-Fried orchestrated “one of the largest financial frauds in American history,” stealing billions of dollars from FTX customers to cover losses in Alameda and to enrich himself. If convicted, he could face life in prison.

Bankman-Fried, before he was arrested in the Bahamas earlier this month, had tried to portray himself as a hapless entrepreneur who got out on the skis. He repeatedly apologized to customers and FTX employees and said “f—ed up,” while denying that he knowingly defrauded anyone.

— CNN’s Lauren del Valle and Kara Scannell contributed reporting.

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