Sam Bankman-Fried (SBF) and other executives of fraudulent FTX continued sharing billions of loot dollars as secret loans from the nefarious fraud’s Alameda Research, Caroline Ellison, former chief executive of Alameda Research told a judge when she pleaded guilty to her role in the exchange’s collapse.
Caroline Ellison, former chief executive of Alameda Research, said she agreed with Bankman-Fried to hide from FTX’s investors, lenders and customers that the hedge fund could borrow unlimited sums from the exchange, according a transcript of her December 19, 2022 plea hearing that was unsealed on December 23.
Caroline Ellison told US District Judge Ronnie Abrams in Manhattan federal court, “We prepared certain quarterly balance sheets that concealed the extent of Alameda’s borrowing and the billions of dollars in loans that Alameda had made to FTX executives and to related parties”. Caroline Ellison and FTX co-founder Gary Wang both pleaded guilty and are cooperating with prosecutors as part of their plea agreements. Their sworn statements offer a preview of how two of Sam Bankman-Fried’s former associates might testify at trial against him as prosecution witnesses.
Caroline Ellison and Gary Wang also told the judge how another key member of the FTX racket, Nishad Sigh had received a US$543 million loan from Alameda Research.
In a separate plea hearing, also on December 19, Gary Wang said he was directed to make changes to FTX’s code to give Alameda special privileges on the trading platform, while being aware that others were telling investors and customers that Alameda had no such privileges. Although Wang did not specify who gave him those directions, it was later revealed by media that the instructions were given directly by Sam Bankman-Fried.
According to Reuters, Nicolas Roos, a prosecutor, said in court that Bankman-Fried’s 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 of customer and investor funds.
Sam Bankman-Fried has acknowledged risk-management failures at FTX but said he does not believe he has criminal liability. He has not yet entered a plea.
Sam Bankman-Fried founded FTX in 2019 and rode a boom in the values of bitcoin and other digital assets to become a billionaire several times over as well as an influential donor to US political campaigns.
A flurry of customer withdrawals in early November amid concerns about commingling of FTX funds with Alameda prompted FTX to declare bankruptcy on November 11.
Sam Bankman-Fried, 30, was released on US$250 million bond.
Caroline Ellison told the court that when investors in June 2022 recalled loans they had made to Alameda Research, she agreed with others to borrow billions of dollars in FTX customer funds to repay them, understanding that customers were not aware of the arrangement.
“I am truly sorry for what I did”, Ellison said, adding that she is helping to recover customer assets.
Gary Wang also said he knew what he was doing was wrong.
The transcript of Caroline Ellison’s hearing was initially sealed out of concern that the disclosure of her cooperation could thwart prosecutors’ efforts to extradite Sam 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. A magistrate judge ordered him confined to his parents’ California home until trial.