The shocking collapse of one of the most famous crypto companies quickly turned into a legal battle pitting former executives and former romantic partners against each other.
Last week, as FTX founder Sam Bankman Fred was being flown from the Bahamas to the United States, two of his former business partners pleaded guilty to multiple charges of fraud and conspiracy.
Caroline Ellison, 28, the former CEO of crypto hedge fund Alameda, pleaded guilty before a federal judge in New York, saying she and her former colleagues knowingly stole billions of dollars from customers of Bankman Fred’s FTX exchange. Disclose it according to court orders.
“I am truly sorry for what I did,” Ellison told the court. “I knew it was wrong.”
Allison told the court that Alameda had an unrestricted borrowing facility at FTX, and that he knew the exchange would require the use of customer funds to finance the loans to the hedge fund. She also agreed to keep the two companies’ unusually close relationship a secret from investors and customers.
From July to October, she told the court, Ellison conspired with Bankman Fred and others to provide “materially misleading financial statements to Alameda’s creditors,” and to prepare balance sheets that reflected Alameda’s debt. Covers the range of uses, according to transcripts of the plea hearing. December 19 and recently opened.
Ellison is charged with seven felony counts, including wire fraud and money laundering conspiracy. She and Fred the banker were close business partners who briefly dated.
Ellison said he knew FTX executives had created an arrangement that allowed Alameda access to an unlimited line of credit without posting collateral or paying interest on negative balances, according to the transaction.
“I understood that if Alameda’s FTX accounts had significant negative balances in any particular currency, it meant that Alameda borrowed funds that FTX customers had deposited into the exchange,” Ellison said in court. Allison said in court.
Another partner, Gary Wong, the former chief technology officer of FTX, pleaded guilty to four counts of the same charges.
Wang told the court that part of his role at FTX included changes to the exchange code that would give Alameda “special privileges” at FTX.
“Between 2019 and 2022, as part of my duties at FTX, I was instructed and agreed to make certain changes to the platform’s code,” Wang said in court. “I implemented the changes, which I knew would allow Alameda research on the FTX platform to have special privileges. I realized that others representing investors and clients that Alameda had no such special privileges and that people were likely to Invest in and use FTX based on these false statements.
“I knew what I was doing was wrong,” he added.
Wong pleaded guilty during a hearing that began on the morning of December 11, 19, and Ellison did the same later that day, beginning around 4:30 p.m. as the SBF remained in the Bahamas. According to court filings.
Wang faces up to 50 years in prison under federal sentencing guidelines. Ellison faces up to 110 years in prison for the seven counts under federal sentencing guidelines.
Both have been released on bail as stipulated in their plea agreements. Ellison and Wong are scheduled to be sentenced on December 19, 2023.
Both Ellison and Wang are cooperating with federal prosecutors, making them potentially damaging witnesses against Bankman Fred, who has repeatedly denied intentionally defrauding customers and investors.
Bankman Farid, 30, appeared in a US court in New York on Thursday, where a federal judge released him 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 unusual amount, Bankman Fred will pay it unless he violates the terms of his bail agreement or fails to appear in court. The unusual bail plan was agreed to as part of his promise to waive his extradition fight.
After his court appearance, Bankman was Fred seen In the Business Class Lounge at New York’s John F. Kennedy International Airport. Crypto reporter Tiffany Fong also tweeted a photo showing Bankman Fred on an American Airlines flight.
Bankman Fred’s legal team confirmed to CNN Business that he had arrived in Palo Alto and was at home with his parents. His attorney declined to comment on the guilty pleas by Ellison and Wang.
Bankman Fred will be tried at an unspecified future date on eight felony counts, including fraud and conspiracy, a federal judge said Thursday.
Prosecutors allege that Bankman Fred 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 be sentenced to life in prison.
Bankman Fred, before his arrest in the Bahamas earlier this month, had tried to portray himself as a ruthless entrepreneur who fell out of his skis. He repeatedly apologized to customers and FTX employees, he said “tightened up,” While denying that he knowingly cheated on anyone.
—CNN’s Lauren Del Valle and Cara Scannell contributed reporting.