Bankman-Fried, FTX Managers Received Billions in Hidden Loans, Ex-Alameda CEO Says

NEW YORK, Dec 23 (Reuters) – Sam Bankman-Fried and other FTX executives received billions of dollars in secret loans from the crypto mogul’s Alameda Research, the former hedge fund chief told a judge as she explained her role in the stock market crash pleaded guilty.

Caroline Ellison, former executive director of Alameda Research, said she had an agreement with Bankman-Fried to hide from FTX’s investors, lenders and customers that the hedge fund could borrow unlimited amounts from the exchange, according to a transcript of her May 19 hearing. Open on Fridays in December.

“We prepared certain quarterly financial statements that obscured the extent of Alameda’s borrowing and the billions of dollars in loans 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 both pleaded guilty and are cooperating with prosecutors as part of their plea agreements. Their affidavits offer a preview of how two former Bankman-Fried employees could testify against him in court as prosecution witnesses.

In a separate hearing, also on Dec. 19, Wang said he was directed to make changes to FTX’s code to grant Alameda special privileges on the trading platform, aware that other investors and clients said that Alameda has no such privileges.

Wang did not say who gave him these instructions.

Nicolas Roos, a prosecutor, told the court Thursday that Bankman-Fried’s trial will include evidence from “multiple cooperating witnesses.” Roos said Bankman-Fried committed 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 doesn’t believe he is criminally responsible. He has not yet submitted a plea.

Bankman-Fried founded FTX in 2019 and experienced a boom in the values โ€‹โ€‹of Bitcoin and other digital assets to become a multi-billionaire and influential political campaign donor in the US.

A spate of client withdrawals in early November amid concerns about FTX funds being mixed up with Alameda prompted FTX to file for bankruptcy on November 11th.

Bankman-Fried, 30, was released Thursday on $250 million bond. His rep declined to comment on Ellison and Wang’s statements.

Attorneys for Wang and Ellison declined to comment.

Ellison told the court that when investors recalled loans they had made to Alameda in June 2022, she agreed with others to borrow billions of dollars in FTX client funds to repay them, understanding that clients would not benefit from the agreement knew.

“I’m really sorry for what I did,” Ellison said, adding that she helps win back client assets.

Wang also said he knew what he was doing was wrong.

The transcript of Ellison’s hearing was initially sealed over concerns that disclosing their collaboration could thwart prosecutors’ efforts to extradite Bankman-Fried from the Bahamas, where he lived and where FTX was based, court filings showed.

Bankman-Fried was arrested in the capital Nassau on December 12 and arrived in the United States on Wednesday after agreeing to be extradited.

A judge ordered him to be locked up at his parents’ home in California pending trial.

On Friday night, Abrams withdrew from the case, saying in a court order that the law firm Davis Polk & Wardwell LLP, of which her husband is a partner, advised FTX in 2021.

The firm also represents parties who could harm FTX and Bankman-Fried in other proceedings, the judge said, and while her husband was not involved in these matters, which “were confidential and the content of which is unknown to the court,” she was withdraw to avoid a possible conflict.

Reporting by Luc Cohen in New York; Writing from Tom Hals in Wilmington, Delaware; Edited by Noeleen Walder, Matthew Lewis and Daniel Wallis

Our standards: The Thomson Reuters Trust Principles.

Luca Cohen

Thomson Reuters

Reports on the New York federal courts. Previously worked as a correspondent in Venezuela and Argentina.

Tom Hals

Thomson Reuters

Award-winning reporter with over two decades of international news experience, focusing on high-stakes litigation in everything from government policy to corporate contracting.

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