Business Partners Activate Sam Bankman-Fried

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New York

The stunning collapse of one of cryptocurrency’s most prominent companies has quickly turned into a legal battle that pits former executives and former romantic partners against each other.

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

Caroline Ellison, the 28-year-old former CEO of crypto hedge fund Alameda, has 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 tried to cover it up, according to court transcripts.

“I’m sorry for what I did,” Ellison told the court. “I knew it was wrong.”

Ellison told the court that Alameda had a virtually unlimited borrowing facility at FTX and that she knew the exchange would need to use customer funds to fund loans to the hedge fund. She also agreed to keep the two companies’ exceptionally close relationship hidden from investors and customers.

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

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

Another associate, Gary Wang, a former chief technology officer at FTX, pleaded guilty to four similar charges.

Wang told the court that part of his role at FTX included making changes to the exchange code that would grant 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 has repeatedly denied intentionally defrauding customers and investors.

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

While $250 million is an extraordinary sum, Bankman-Fried will not have to pay it unless he breaches the terms of his bail agreement or fails to appear in court. The uncharacteristic bail plan was agreed upon as part of his commitment to drop his extradition fight.

After her court appearance, Bankman-Fried was identified in a business class lounge at New York’s John F. Kennedy International Airport. 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 home with his parents. Their attorney declined to comment on Ellison and Wang’s guilty pleas.

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

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

Bankman-Fried, prior to his arrest in the Bahamas earlier this month, tried to portray himself as a hapless businessman who has escaped his skis. He repeatedly apologized to customers and the FTX staff, saying that “full,” while denying that he knowingly defrauded anyone.

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