Bankman-Fried and FTX executives received billions in hidden loans, says former Alameda CEO

NEW YORK, Dec 23 (Reuters) – Sam Bankman-Fried and other FTX executives received billions of dollars in secret loans from cryptocurrency mogul Alameda Research, the former head of the hedge fund told a judge when she pleaded guilty of his role in the stock market crash. .

Caroline Ellison, the former chief executive of Alameda Research, said she agreed with Bankman-Fried to hide from FTX investors, lenders and clients that the hedge fund could borrow unlimited sums from the exchange, according to a transcript of her plea hearing. December 19 that was open on Friday.

“We prepared certain quarterly statements that concealed the extent of Alameda’s lending 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. of Manhattan, according to the transcript. .

Ellison and FTX co-founder Gary Wang have both pleaded guilty and are cooperating with prosecutors as part of their plea agreements. His affidavits offer a preview of how two of Bankman-Fried’s former associates might testify in the trial against him as prosecution witnesses.

In a separate plea hearing, also on Dec. 19, Wang said he was directed to make changes to FTX’s code to give Alameda special privileges on the trading platform, while knowing 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 the Bankman-Fried trial would include evidence from “multiple cooperating witnesses.” Roos said Bankman-Fried carried out a “fraud of epic proportions” that led to the loss of billions of dollars in client and investor funds.

Bankman-Fried has acknowledged failings in risk management at FTX, but said he does not believe he bears criminal liability. He has yet to enter a guilty plea.

Bankman-Fried founded FTX in 2019 and boomed in bitcoin values ​​and other digital assets to become a multi-time billionaire as well as an influential donor to US political campaigns.

A spate of client withdrawals in early November amid concerns about FTX’s pooling of funds with Alameda led FTX to file for bankruptcy on November 11.

Bankman-Fried, 30, was released Thursday on $250 million bail. His spokeswoman declined to comment on the statements by Ellison and Wang.

Lawyers for Wang and Ellison declined to comment.

Ellison told the court that when investors in June 2022 withdrew the loans they had made to Alameda, she agreed with others to borrow billions of dollars in funds from FTX clients to repay them, understanding that the clients were not aware both of the deal.

“I’m really sorry for what I did,” Ellison said, adding that he is helping recover clients’ assets.

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

Ellison’s hearing transcript was initially sealed over concerns that disclosure of his cooperation could thwart efforts by prosecutors to extradite Bankman-Fried from the Bahamas, where he lived and where FTX was headquartered, records showed. judicial.

Bankman-Fried was arrested in the capital, Nassau, on December 12 and arrived in the United States on Wednesday after consenting to extradition.

A trial judge ordered him confined to his parents’ home in California until trial.

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

The firm also represented parties who might be adverse to FTX and Bankman-Fried in other proceedings, the judge said, and although her husband was not involved in these matters, which “were confidential and the substance of which is unknown to the Court,” she gradually recused herself for avoid a possible conflict.

Reporting by Luc Cohen in New York; Written by Tom Hals in Wilmington, Del.; Edited by Noeleen Walder, Matthew Lewis, and Daniel Wallis

Our standards: The Thomson Reuters Trust Principles.

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