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CNN
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The shocking collapse of one of the most prominent crypto companies has quickly morphed into a legal battle pitting former executives and former romantic partners against each other.
Last week, while FTX founder Sam Bankman-Fried was being extradited to the united states of the Bahamas, two of his former business partners have pleaded guilty to multiple counts of fraud and conspiracy.
Caroline Ellison, the 28-year-old former chief executive of crypto hedge fund Alameda, has apologized before a federal judge in New York, saying she and her former partners knowingly stole billions of dollars from clients of the Bankman-Fried FTX exchange and they tried to cover it up, according to court transcripts.
“I am truly sorry for what I did,” Ellison told the court. “I knew it was wrong.”
Ellison told the court that Alameda had a virtually unlimited lending facility at FTX, and that he knew the exchange would need to use client funds to finance loans to the hedge fund. He also agreed to keep the unusually close relationship of the two companies hidden from investors and customers.
From July through October, he told the court, Ellison agreed with Bankman-Fried and others to provide “substantially misleading financial statements to Alameda’s lenders” and prepared balance sheets that concealed the amount of Alameda’s loans, according to hearing transcripts. of guilt held on December 19 and recently unsealed.
Ellison has been charged with seven criminal counts, including conspiracy to commit wire fraud and money laundering. She and Bankman-Fried were close business partners. who came out briefly.
Ellison said he was aware that FTX executives created an agreement that allowed Alameda to access an unlimited line of credit without having to pay collateral or pay interest on negative balances, according to the transcript.
“I understood that if Alameda’s FTX accounts had significant negative balances in any particular currency, it meant that Alameda was borrowing funds that FTX customers had deposited with the exchange,” Ellison said in court.
Another associate, Gary Wang, a former CTO 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’s code that would give Alameda “special privileges” at FTX.
“Between 2019 and 2022, as part of my employment at FTX, I was directed to and agreed to make certain changes to the platform’s code,” Wang said in court. “I ran those changes, which I knew would give Alameda Research special privileges on the FTX platform. I did so knowing that others were representing to investors and clients that Alameda did not have such special privileges and that people were likely investing in and using FTX based in part on those misrepresentations.”
“I knew what I was doing was wrong,” he added.
Wang pleaded guilty during a hearing that began at 11 a.m. Dec. 19 and Ellison pleaded guilty later that day, beginning around 4:30 p.m. while SBF remained in the Bahamas, according to court transcripts.
Wang faces up to 50 years in prison according to the federal sentencing guidelines mentioned in the court. Ellison faces up to 110 years in prison for the seven counts to which she pleaded guilty, according to federal sentencing guidelines.
Both are out on bail as negotiated in their plea agreements. Sentencing for Ellison and Wang is scheduled for December 19, 2023.
Both Ellison and Wang are cooperating with federal prosecutors, making them potentially damning witnesses against Bankman-Fried, who has repeatedly denied intentionally defrauding clients and investors.
Bankman-Fried, 30, appeared Thursday in a US court in New York, where a federal judge He was released on $250 million bail. He is required to surrender his passport and remain under house arrest at his parents’ home in Palo Alto, California.
Although $250 million is an extraordinary sum, Bankman-Fried won’t have to pay it unless he violates the terms of his bail agreement or fails to appear in court. The atypical bail plan was agreed to as part of his commitment to give up his extradition fight.
After his court appearance, Bankman-Fried was stained 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 she had arrived in Palo Alto and was home with her parents. Her attorney declined to comment on Ellison’s and Wang’s guilty pleas.
The 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 orchestrated “one of the largest financial frauds in American history,” stealing billions of dollars from FTX clients to cover losses in Alameda and enrich themselves. If convicted, he could face life in prison.
Bankman-Fried, prior to his arrest in the Bahamas earlier this month, had tried to present himself as a ski-hopping businessman. He has repeatedly apologized to customers and to FTX staff, saying that “Fed up,” while denying that he knowingly defrauded anyone.
— CNN’s Lauren del Valle and Kara Scannell contributed to this report.
