The stunning collapse of one of cryptocurrency’s most famous companies has quickly turned into a legal battle, pitting former executives and ex-lovers against each other.
When FTX founder Sam Bankman-Fried was extradited from the Bahamas to the United States last week, two of his former business partners pleaded guilty to multiple charges of fraud and conspiracy.
Caroline Ellison, the 28-year-old former CEO of crypto hedge fund Alameda, has apologized before a New York federal judge, saying she and her former colleagues deliberately stole from customers of Bankman-Fried’s FTX exchange. Billions of dollars and, according to court records, an attempt to cover up the facts.
“I’m really sorry for what I did,” Ellison said in court. “I know it’s wrong.”
Ellison told the court that Alameda had virtually unlimited lending facilities at FTX and that she knew the exchange needed to use client funds to fund the hedge fund’s loans. She also agreed to hide the unusually close relationship between the two companies from investors and customers.
She told the court that from July to October, Ellison agreed with Bankman-Fried and others to provide Alameda’s lenders with “materially misleading financial statements” and prepared balance sheets that obscured the scale of Alameda’s borrowings. The table, according to the transcript of the 2017 plea hearing held on Dec. 19, was recently unsealed.
Ellison was charged with seven criminal counts, including conspiracy to commit wire fraud and money laundering. She and Bankman-Fried were close business partners who briefly dated.
Ellison said she knew FTX executives worked out an arrangement that allowed Alameda to access an unlimited line of credit without posting collateral or paying interest on negative balances.
“I understand that if Alameda’s FTX account has a substantial negative balance in any particular currency, it means that Alameda is borrowing funds deposited into the exchange by FTX customers,” Ellison said in court.
Another employee of FTX’s former chief technology officer, Gary Wang, pleaded guilty to four similar charges.
Wang told the court that part of his role at FTX included modifying the exchange’s code to grant Alameda “privileges” on 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 made these changes, and I knew they would give Alameda Research privileges on the FTX platform. I did it because I knew other people were saying to investors and customers that Alameda didn’t have such privileges, and people might be based in part on these False representations to invest in and use FTX.”
“I knew what I was doing was wrong,” he added.
Wang pleaded guilty at a hearing that began at 11 a.m. on Dec. 19, and Ellison did the same later that day, starting around 4:30 p.m., as the SBF remained in the Bahamas, according to court records.
Wang faces up to 50 years in prison, according to federal sentencing guidelines cited in court. Ellison faces up to 110 years in prison for the seven counts he pleaded guilty to, according to federal sentencing guidelines.
Both have been released on bail under 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 potential witnesses against Bankman-Fried, who has repeatedly denied knowingly defrauding customers and investors.
Bankman-Fried, 30, appeared in U.S. court in New York on Thursday, where a federal judge released him on $250 million bond. He was ordered to surrender his passport and placed under house arrest at his parents’ home in Palo Alto, California.
While $250 million is a lot of money, Bankman-Fried doesn’t have to pay it unless he violates the terms of his bail agreement or fails to appear in court. The atypical bail plan was agreed to as part of his pledge to drop his extradition fight.
Bankman-Fried after court appearance spot In the business class lounge at John F. Kennedy International Airport in New York. Cryptocurrency journalist Tiffany Fong also tweeted a photo of 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 and Wang’s guilty pleas.
Bankman-Fried will be arraigned at an unspecified future date on eight criminal counts, including fraud and conspiracy, a federal judge said Thursday.
Prosecutors accused Bankman-Fried of orchestrating “one of the largest financial frauds in U.S. history,” stealing billions of dollars from FTX clients to cover losses in Alameda and enrich himself. If convicted, he could face life in prison.
Bankman-Fried tried to paint himself as a down-on-his-luck entrepreneur who put skiing aside before he was arrested in the Bahamas earlier this month.He has repeatedly apologized to customers and FTX employees, saying he “fed up,” He also denies that he deliberately deceived anyone.
— CNN’s Lauren del Valle and Kara Scannell contributed reporting.