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

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NEW YORK, Dec 23 (Reuters) – Sam Bankman-Fried and other FTX executives have received billions of dollars in secret loans from cryptocurrency tycoon Alameda Research, the former hedge fund head told a judge when she pleaded guilty of its 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, creditors and clients that the hedge fund could borrow unlimited sums from the exchange, according to a transcript of her hearing. from December 19th which opened on Friday.

“We prepared certain quarterly balance sheets that concealed 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 Manhattan federal court, according to the transcript. 🇧🇷

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

At a separate hearing, also on Dec. 19, Wang said he was instructed to make changes to the FTX code to give Alameda special privileges on the trading platform, although he was aware that others were telling investors and clients that Alameda did not had such privileges.

Wang did not specify who gave him those instructions.

Nicolas Roos, a prosecutor, said in court on Thursday that Bankman-Fried’s trial would include evidence from “multiple cooperating witnesses”. Roos said Bankman-Fried committed a “fraud of epic proportions” that led to the loss of billions of dollars in customer and investor funds.

Bankman-Fried acknowledged flaws in risk management at FTX, but said he does not believe he bears criminal responsibility. He has not yet filed an application.

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

A flurry of customer withdrawals in early November amid concerns over FTX’s mixing of funds with Alameda led to FTX declaring bankruptcy on November 11.

Bankman-Fried, 30, was released Thursday on $250 million bail. His spokesperson 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 canceled 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 of the arrangement. .

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

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

Ellison’s hearing transcript was initially sealed due to concerns that disclosing his cooperation could impede 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 United States on Wednesday after consenting to extradition.

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

Reporting by Luc Cohen in New York Writing by Tom Hals in Wilmington, Del. Edited by Noeleen Walder and Matthew Lewis

Our Standards: Thomson Reuters Trust Principles.

Luc Cohen

Thomson Reuters

New York Federal Court Reports. Previously, he 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 legal battles on everything from government policy to corporate dealings.