The surprising collapse of one of crypto’s most prominent firms has turned into a legal battle pitting former executives and ex-romantic partners against one another.
Last week, FTX founder Sam Bankman-Fried was being extradited from the Bahamas to the United States after two of his former business partners pleaded guilty to multiple charges of fraud and conspiracy.
Caroline Ellison, the 28-year-old former CEO of crypto hedge fund Alameda, apologized before a federal judge in New York, saying she and her former associates knowingly stole billions of dollars from customers of Bankman-Fried’s FTX exchange and demanding restitution, according to court transcripts. cover it.
Ellison told the court, “I am truly sorry for what I did.” “I knew it was wrong.”
Ellison told the court that Almeida had virtually unlimited borrowing access at FTX, and that she knew the exchange would need to use customer funds to make loans to the hedge fund. She also agreed to keep the unusually close relationship between the two firms a secret from investors and clients.
From July to October, she told the court, Ellison agreed with Bankman-Fried and others to provide “materially misleading financial statements to Alameda’s lenders” and prepared balance sheets that reflected Alameda’s borrowings. The border was concealed, according to the transcript from the plea hearing that was held. December 19th and recently unsealed.
Ellison faces seven criminal charges, including conspiracy to commit wire fraud and money laundering. She and Bankman-Fried were close business associates who dated for a while.
Ellison said she knew that FTX executives had created an arrangement that allowed Almeida access to an unlimited line of credit without having to post collateral or pay interest on negative balances, according to the transcript.
Ellison said in court, “I understood that if Almeida’s FTX accounts had significant negative balances in a particular currency, it meant that Almeida was borrowing funds deposited into the exchange by FTX’s customers. ”
Another associate, Gary Wang, former chief technology officer of FTX, pleaded guilty to four counts of similar charges.
Wang told the court that part of his role at FTX included making changes to the exchange’s code that would give Alameda “exclusive privileges” over FTX.
“Between 2019 and 2022, as part of my employment at FTX, I was directed to make certain changes to the platform’s code and I agreed,” Wang said in court. “I executed changes that I knew would be exclusive privileges to Alameda Research on the FTX platform. I did so knowing that others were representing investors and clients that Alameda had no such exclusive privileges And people were investing in and using FTX based on those false statements.
“I knew what I was doing was wrong,” he said.
Wang pleaded guilty on December 19 during a hearing that began at 11 a.m., and Ellison did the same later that day, which began at 4:30 p.m., because the SBF was in the Bahamas, according to court transcripts.
Wang could face up to 50 years in prison, according to federal sentencing guidelines referenced in court. Under federal sentencing guidelines, Ellison could face up to 110 years in prison for the seven counts of which he has been convicted.
Both are out on bail as negotiated in their plea agreement. Sentencing for Ellison and Wang is scheduled for December 19, 2023.
Both Ellison and Wang are cooperating with federal prosecutors, making them potentially damaging witnesses against Bankman-Fried, which has repeatedly denied knowingly defrauding customers and investors.
Bankman-Fried, 30, appeared in a US court in New York on Thursday, where a federal judge released her on $250 million bond. He must surrender his passport and remain under house arrest at his parents’ home in Palo Alto, California.
Although $250 million is an extraordinary amount, Bankman-Fried will not have to pay it unless he violates the terms of his bail agreement or fails to appear in court. The unusual bail scheme was agreed as part of his commitment to waive his extradition fight.
After his court appearance, Bankman-Fried was speckled In a business class lounge at John F Kennedy International Airport in New York. Crypto reporter Tiffany Fong also tweeted a picture 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 at home with his parents. Their attorney declined to comment on the guilty pleas by Ellison and Wang.
A federal judge said Thursday that Bankman-Fried would be indicted on eight criminal counts, including fraud and conspiracy, at an unspecified future date.
Prosecutors allege that Bankman-Fried perpetrated “one of the largest financial frauds in US history”, stealing billions of dollars from FTX clients to cover losses at Alameda and enrich themselves. If convicted, he could face life in prison.
Bankman-Fried, prior to his arrest in the Bahamas earlier this month, was trying to portray himself as a hapless entrepreneur who fell out of his skis. He repeatedly apologized to customers and FTX employees, saying “fed up,” While denying that he intentionally cheated anyone.
— CNN’s Lauren del Valle and Kara Scannell contributed reporting.