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Bankman-Fried and FTX executives received billions in hidden loans, says former Alameda CEO

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NEW YORK, Dec 23 (Reuters) – Sam Bankman-Fried and other FTX executives have received billions of dollars in secret loans from the crypto tycoon’s Alameda Research, the former fund chief said speculation to a judge when she pleaded guilty to her role in the collapse of the exchange. .

Caroline Ellison, former managing director of Alameda Research, said she agreed with Bankman-Fried in hiding from FTX investors, lenders and customers that the hedge fund could borrow unlimited amounts from the exchange, according to a report. transcript of his December 13 show. 19 plea hearing which was unsealed on Friday.

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

Ellison and FTX co-founder Gary Wang have both pleaded guilty and are cooperating with prosecutors in their plea deals. Their affidavits offer insight into how two of Bankman-Fried’s former associates might testify at trial against him as prosecution witnesses.

At a separate plea hearing, also on December 11. On Jan. 19, Wang said he was tasked with making changes to FTX’s code to give Alameda special privileges on the trading platform, while being aware that others were telling investors and customers that ‘Alameda had no such privileges.

Wang did not say who gave him these instructions.

Nicholas Roos, a prosecutor, said in court Thursday that Bankman-Fried’s trial would include evidence from “several cooperating witnesses.” Roos said Bankman-Fried committed a “fraud of epic proportions” that resulted in the loss of billions of dollars in client and investor funds.

Bankman-Fried acknowledged failures in risk management at FTX, but said he did not believe he had criminal liability. He has not yet entered a plea.

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

A wave of client withdrawals in early November amid concerns about FTX funds mixing with Alameda prompted FTX to file for bankruptcy on November 1. 11.

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

Lawyers for Wang and Ellison declined to comment.

Ellison told the court that when investors in June 2022 recalled the loans they had made to Alameda, she agreed with others to borrow billions of dollars in FTX client funds to repay them, knowing that the clients were unaware of the arrangement.

“I’m so sorry for what I did,” Ellison said, adding that she was helping recover client assets.

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

The transcript of Ellison’s hearing was initially sealed over fears that disclosing his cooperation could thwart prosecutors’ efforts to extradite Bankman-Fried from the Bahamas, where he lived and where FTX was based, according to court records.

Bankman-Fried was arrested in the capital, Nassau, on December 2. 12 and arrived in the United States on Wednesday after consenting to extradition.

A magistrate ordered that he be confined to his parents’ California home until trial.

On Friday night, Abrams recused herself from the case, saying in a court order that the law firm Davis Polk & Wardwell LLP, where her husband is a partner, advised FTX in 2021.

The firm has also represented parties who may be adverse to FTX and Bankman-Fried in other proceedings, the judge said, and although her husband was not involved in those matters, which “were confidential and the substance is unknown to the court”, she recused herself to avoid a possible conflict.

Reporting by Luc Cohen in New York; Written by Tom Hals in Wilmington, Delaware; Editing by Noeleen Walder, Matthew Lewis and Daniel Wallis

Our standards: The Thomson Reuters Trust Principles.

Luke Cohen

Thomson Reuters

New York Federal Courts Reports. Previously, he worked as a correspondent in Venezuela and Argentina.

Tom Hales

Thomson Reuters

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