New York
CNN
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The stunning collapse of one of the most prominent crypto companies has quickly turned into a legal battle pitting ex-executives and ex-romantic partners against each other.
Last week, when FTX founder Sam Benkman-Fried was extradited to the United States from the Bahamas, two of his former business partners pleaded guilty to multiple charges of fraud and conspiracy.
Former Alameda crypto investment fund CEO Carolyn Ellison, 28, apologized before a federal judge in New York, saying she and her former colleagues knowingly stole billions of dollars from customers of the Bankman-Fried exchange FTX. Cover it up, according to the court transcript.
“I’m really sorry for what I did,” Ellison told the court. “I knew it was wrong.”
Ellison told the court that Alameda had a virtually unlimited borrowing facility at FTX and that he knew the exchange needed to use customer funds to finance the hedge fund’s loans. He also agreed to keep the two companies’ unusually close relationship hidden from investors and customers.
He told the court that from July to October, 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 borrowing. December 19 and not recently sealed.
Ellison has been charged with seven felony counts, including conspiracy to commit wire fraud and money laundering. He and Bankman-Fried were close business associates who dated for a short time.
Ellison said he knew FTX executives had worked out an arrangement that would allow Alameda access to an unlimited line of credit without having to post collateral or pay interest on negative balances.
“I find that if Alameda’s FTX accounts have significant negative balances in any particular currency, it means that Alameda is borrowing funds that FTX customers have deposited with the exchange,” Ellison said in court.
Another colleague, former FTX CTO Gary Wang, 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 instructed and agreed to make certain changes to the platform’s code,” Wang said in court. “I implemented those changes, knowing that Alameda Research had special privileges on the FTX platform. “I knew that others would represent to investors and customers that Alameda does not have such a special privilege and that people are likely to invest in and take advantage of FTX based on those misrepresentations.”
He added: I knew what I was doing was wrong.
Wang pleaded guilty at a hearing that began at 11 a.m. on Dec. 19, and Ellison did the same later that afternoon, while SBF remained in the Bahamas, according to court transcripts.
Wang faces up to 50 years in prison under federal sentencing guidelines cited in court. Ellison faces up to 110 years in prison for the seven counts to which he pleaded guilty, under federal sentencing guidelines.
Both have been released 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 incriminating witnesses against Bankman-Fried, which has repeatedly denied intentionally defrauding customers and investors.
Bankman-Fried, 30, appeared in court in New York on Thursday, where a federal judge released her 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 a hefty sum, Bankman-Fried does not have to pay it unless he violates the terms of his bail agreement or fails to appear in court. The unusual bail proposal was agreed to as part of his pledge to waive his extradition fight.
After appearing in court, it was Bankman-Fried spotted in a business class lounge at New York’s John F. Kennedy International Airport. Crypto reporter Tiffany Fong also tweeted a photo showing Benkman-Fried on an American Airlines flight.
Bankman-Fried’s legal team confirmed to CNN Business that she has arrived in Palo Alto and is at home with her parents. His attorney declined to comment on Ellison and Wang’s confessions.
A federal judge said Thursday that Benkman-Fried will be tried on eight felony charges, including wire fraud and conspiracy, at an unspecified future date.
Prosecutors allege Bankman-Fried orchestrated “one of the largest financial frauds in American history” and stole billions of dollars from FTX customers to cover Alameda’s losses and enrich himself. If convicted, he could be sentenced to life in prison.
Before his arrest in the Bahamas earlier this month, Benkman-Fried had tried to pass himself off as a down-on-his-luck entrepreneur on his skis. He repeatedly apologized to customers and employees of FTX and said that he “tired,” While denying that he knowingly defrauded anyone.
— CNN’s Lauren Del Valle and Cara Scannell reported.