Bankman-Fried, FTX execs received billions in hidden loans, ex-Alameda CEO says

NEW YORK, Dec 23 (Reuters) – Sam Bankman-Fried and other FTX executives received billions of dollars in secret loans from crypto mogul’s Alameda Research, the former head of the hedge fund told a judge in when he pleaded guilty to his role in the collapse of the exchange.

Caroline Ellison, former chief executive 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 from the exchange, according to a transcript of her request on December 19 was not sealed on Friday.

“We prepared several quarterly balance sheets that hid the extent of Alameda’s borrowing and the billions of dollars in loans Alameda made to FTX executives and related parties,” Ellison told the US District Judge Ronnie Abrams in Manhattan federal court, according to the transcript.

Ellison and FTX co-founder Gary Wang both pleaded guilty and cooperated with prosecutors as part of their plea agreements. Their sworn statements offer a preview of how two of Bankman-Fried’s former associates may testify at trial against her as prosecution witnesses.

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In a separate hearing on the request, on December 19, Wang said he was ordered to make changes to the FTX code to give Alameda special privileges on the trading platform, while noting that others told investors and customers that Alameda had no such privileges.

Wang did not specify who gave him the directions.

Nicolas Roos, a prosecutor, said in court Thursday that Bankman-Fried’s trial will include evidence from “several 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 FTX’s risk management failures but said he did not believe he was criminally liable. He has not yet entered a plea.

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

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A flurry of customer withdrawals in early November amid concerns about the commingling of FTX’s funds in Alameda prompted FTX to declare bankruptcy on November 11.

Bankman-Fried, 30, was released Thursday on $250 million bail. His spokesman declined to comment on Ellison and Wang’s statements.

Attorneys for Wang and Ellison declined to comment.

Ellison told the court that when the investors in June 2022 recalled the loans they made to Alameda, he agreed with others to borrow billions of dollars in FTX customer funds to repay them, knowing that the customers are not aware of the arrangement.

“I really regret what I did,” Ellison said, adding that he was helping to recover the customer’s assets.

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

The transcript of Ellison’s hearing was initially sealed due to concerns that revealing his cooperation could hinder prosecutors’ efforts to extradite Bankman-Fried from The Bahamas, where he lives and where FTX is based, the court records.

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Bankman-Fried was arrested in the capital of Nassau on December 12 and arrived in the United States on Wednesday after agreeing to extradition.

A judge ordered him to be kept at his parents’ home in California until the trial.

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

Our Standards: The Thomson Reuters Trust Principles.

Luc Cohen

Thomson Reuters

Reports on federal courts in New York. Previously worked as a correspondent in Venezuela and Argentina.

Tom Hals

Thomson Reuters

Award-winning journalist with more than two decades of experience in international news, focusing on high-stakes legal battles on everything from government policy to business performance.

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