Business

Business partners turn on Sam Bankman-Fried



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CNN
—

The stunning collapse of one of the most famous crypto firms quickly turned into legal battle opposition to former supervisors and former romantic partners.

Last week, when FTX founder Sam Bankman-Fried was 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, apologized to 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 records.

“I am truly sorry for what I have done,” Ellison told the court. “I knew it was wrong.”

Ellison told the court that Alameda had virtually unlimited borrowing options at FTX and that it knew the exchange would have to use customer funds to finance loans to the hedge fund. She also agreed to keep the two firms’ unusually close relationship hidden 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 concealed the amount of Alameda’s loans, according to transcripts of hearings held on December 19 and recently printed.

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

Ellison said he knew FTX executives had created an agreement that allowed Alameda access to an unlimited line of credit without being required to post collateral or pay interest on negative balances, according to the transcript.

“My understanding is that if Alameda’s FTX accounts had significant negative balances in a particular currency, that means Alameda was borrowing funds that FTX customers had deposited into the exchange,” Ellison said in court.

Another associate, Gary Wang, FTX’s former chief technology officer, 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” to FTX.

“Between 2019 and 2022, as part of my work at FTX, I was directed and agreed to make certain changes to the platform’s code,” Wang said in court. “I ran these changes that I knew would get Alameda Research special privileges on the FTX platform. I did so knowing that others were representing to investors and clients that Alameda had no such special privileges and that people were likely investing in and using FTX based in part on these misrepresentations.”

“I knew what I was doing was wrong,” he added.

Wang pleaded guilty during a hearing that began at 11 a.m. on Dec. 19, and Ellison did the same later that day beginning around 4:30 p.m., as SBF remained in the Bahamas, according to court transcripts.

Wang faces up to 50 years in prison under federal sentencing guidelines outlined in court. Ellison faces up to 110 years in prison on the seven counts to which she pleaded guilty, according to federal sentencing guidelines.

Both have been released on bail as agreed to in their plea agreements. Ellison and Wang are scheduled to be sentenced on December 19, 2023.

Both Ellison and Wang are cooperating with federal prosecutors, making them potentially incriminating witnesses against Bankman-Fried, who has repeatedly denied intentionally defrauding clients and investors.

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

Although $250 million is an outstanding amount, Bankman-Fried will not have to pay it unless she violates the terms of her bail agreement or appears in court. The unusual bail plan was agreed as part of his commitment to drop his extradition fight.

After his court appearance, Bankman-Fried was noticed in the business class lounge at John F. Kennedy International Airport in New York. 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 has arrived in Palo Alto and is at home with his parents. His attorney declined to comment on Ellison’s and Wang’s guilty pleas.

A federal judge on Thursday said Bankman-Fried will stand trial on eight criminal charges, including fraud and conspiracy, at an unspecified future date.

Prosecutors say Bankman-Fried orchestrated “one of the largest financial frauds in American history,” stealing billions of dollars from FTX customers to cover losses at Alameda and enrich himself. If convicted, he could face life in prison.

Bankman-Fried, before he was arrested in the Bahamas earlier this month, tried to pass himself off as a down-on-his-luck entrepreneur who got off on skis. He repeatedly apologized to customers and FTX staff, saying that “fed up,” denying knowingly defrauding anyone.

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




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