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

NEW YORK, Dec 23 (Reuters) – Sam Bankman-Fried and other FTKS executives received billions of dollars in secret loans from crypto mogul Alameda Research, the former hedge fund boss told a judge as she pleaded guilty to her role in the stock market collapse. .

Caroline Ellison, the former executive director of Alameda Research, said she agreed with Bankman-Fried to hide from investors, lenders and FTX buyers that the hedge fund could borrow unlimited amounts from the stock market, according to a transcript of her plea hearing. on guilt from December 19. unsealed on Friday.

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

Ellison and FTKS co-founder Gary Wang pleaded guilty and are cooperating with prosecutors as part of their plea agreements. Their affidavits offer a preview of how two of Bankman-Fried’s former associates could testify at his trial as prosecution witnesses.

At a separate plea hearing, also on Dec. 19, Wang said he was ordered to make changes to FTX’s code to give Alameda special privileges on the trading platform, while he was aware that others were telling investors and customers that Alameda has no such privileges.

Wang did not specify who gave him those instructions.

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

Bankman-Fried acknowledged mistakes in risk management at FTKS, but said he did not believe he was criminally responsible. He has not yet pleaded guilty.

Bankman-Fried founded FTKS in 2019 and has seen the boom in the value of Bitcoin and other digital assets to become a billionaire several times over, as well as an influential donor to US political campaigns.

A flurry of customer withdrawals in early November amid concerns about the commingling of FTKS’s funds with Alameda prompted FTKS to declare bankruptcy on November 11.

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

Lawyers for Wang and Ellison declined to comment.

Ellison told the court that when the investors called off the loans they made to Alameda in June 2022, she agreed with others to borrow billions of dollars in funds from FTKS clients to pay them back, realizing the clients were unaware of the arrangement.

“I’m really sorry for what I did,” Alison said, adding that she was helping recover clients’ funds.

Wang also said he knows what he’s doing is wrong.

The transcript of Ellison’s hearing was initially sealed out of concern that disclosure of her cooperation could thwart prosecutors’ efforts to extradite Bankman-Fried from the Bahamas, where he lived and where FTKS was located, court records show.

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

A magistrate judge ordered him to be confined to his parents’ home in California pending 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 FTKS 2021.

The firm also represented potential adversaries to FTKS and Bankman-Fried in other proceedings, the judge said, and while her husband was not involved in these matters, which “were confidential and the substance of which is unknown to the Court,” she is excluding herself in order to avoid a possible conflict.

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

Our Standards: Thomson Reuters Trust Principles.

Luc Cohen

Thomson Reuters

New York Federal Court Reports. He previously worked as a correspondent in Venezuela and Argentina.

Tom Hals

Thomson Reuters

Award-winning reporter with more than two decades of experience in international news, focusing on high-stakes legal battles over everything from government policy to corporate deal-making.

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