Sam Bankman-Fried and other FTX executives have received billions of dollars in secret loans from the crypto mogul’s Alameda Research, the former hedge fund boss told a judge in the United States as she pleaded guilty to her role in the stock market collapse.
Caroline Ellison, former managing director 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 amounts of money from the stock market. This is according to a transcript of their lawsuit hearing on December 19, which was unsealed on Friday.
“We prepared certain quarterly statements that concealed the extent of Alameda’s borrowing 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 Manhattan Federal Court, according to the minutes.
Ellison and FTX co-founder Gary Wang pleaded guilty and are cooperating with prosecutors as part of their lawsuit agreements. Her affidavits provide a foretaste of how two former Bankman-Fried employees could testify in court as prosecution witnesses.
In a separate lawsuit hearing, also on December 19, Wang said he was instructed to make changes to the FTX Code to give Alameda special privileges on the trading platform, while aware that other investors and clients told Alameda had no such privileges.
Wang did not specify who had given him these instructions.
Nicolas Roos, a prosecutor, said in court on Thursday that the lawsuit against Bankman-Fried would include evidence from “several cooperating witnesses.” Roos said Bankman-Fried committed an “epic fraud” that resulted in the loss of billions of dollars in customer and investor money.
Bankman-Fried has acknowledged the failure of risk management at FTX but said he does not believe he is criminally responsible. He hasn’t filed a plea yet.
Bankman-Fried founded FTX in 2019 and saw an upsurge in the values of Bitcoin and other digital assets to become a multi-time billionaire and influential donor to political campaigns in the US.
A spate of customer withdrawals in early November due to concerns about the mixing of FTX funds with Alameda prompted FTX to file for bankruptcy on November 11.
Bankman-Fried, 30, was released on $250 million bail on Thursday. His spokesperson 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, they agreed with others to borrow billions of dollars in FTX customer funds to repay them, as she understood that customers were unaware of the agreement.
“I’m really sorry for what I’ve done,” Ellison said, adding that she is helping to recover customer assets.
Wang also said that he knew that what he was doing was wrong.
The transcript of Ellison’s hearing was initially sealed because it was feared that disclosing their cooperation could thwart 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 city of Nassau on December 12 and came to the USA on Wednesday after agreeing to be extradited.
A judge ordered that he be locked up at his parents’ home in California pending trial.