Caroline Ellison and Gary Wang turned against Sam Bankman-Fried

New York

The stunning collapse of one of the most prominent crypto companies quickly turned into a legal battle pitting former CEOs against former romantic partners.

Last week, while FTX founder Sam Bankman-Fried was being extradited to the United States from the Bahamas, two of his former business partners pleaded guilty to multiple charges of fraud and conspiracy.

Caroline Ellison, the 28-year-old former chief executive of crypto hedge fund Alameda, pleaded guilty before a federal judge in New York, saying she and her former associates knowingly stole billions of dollars from customers of Bankman-Fried’s FTX exchange and sought to cover it up, according to court transcripts.

“I am truly sorry for what I have done,” Ellison told the court. “I knew it was wrong.”

Ellison told the court that Alameda had almost unlimited borrowing power at FTX and that she knew the exchange would have to use client funds to fund loans to the hedge fund. She also agreed to keep the unusually close relationship between the two companies hidden from investors and customers.

From July to October, she told the court, Ellison conspired with Bankman-Fried and others to provide “materially misleading financial statements to Alameda’s lenders” and prepared balance sheets that concealed the extent of Alameda’s borrowing, according to transcripts from a Dec. 19 plea hearing. and recently unsealed.

Ellison was charged with seven felony counts, including conspiracy to commit fraud and money laundering. She and Bankman-Fried were close business associates who dated briefly.

Ellison said she knew FTX executives had created an arrangement that gave Alameda access to an unlimited line of credit without having to post collateral or pay interest on negative balances, according to the transcript.

“I understood that if Alameda’s FTX accounts had significant negative balances in any particular currency, that meant Alameda was borrowing funds that FTX’s clients had deposited into the stock exchange,” Ellison said in court.

Another associate, Gary Wang, FTX’s former chief technology officer, pleaded guilty to four counts of similar charges.

Wang told the court that part of his role at FTX included changes to the exchange’s code that would have granted Alameda “special privileges” on FTX.

“Between 2019 and 2022, as part of my employment with FTX, I was instructed and agreed to make certain changes to the platform code,” Wang told the court. “I implemented these changes, which I knew would give Alameda Research special privileges on the FTX platform. I did so knowing that others had represented to investors and clients that Alameda had no such special privileges and that people likely invested in and used FTX based in part on those false representations.”

“I knew what I was doing was wrong,” he added.

Wang pleaded guilty during a hearing that began at 11 a.m. Dec. 19, and Ellison did the same later that day, beginning around 4:30 p.m. as SBF remained in the Bahamas, according to court transcripts.

Wang faces up to 50 years in prison under federal sentencing guidelines cited by the court. Ellison faces up to 110 years in prison for the seven counts to which she pleaded guilty, according to federal sentencing guidelines.

Both are free on bail as agreed to in their plea agreements. Ellison and Wang are scheduled to be sentenced on December 19, 2023.

Both Ellison and Wang are cooperating with federal prosecutors, making them potential incriminating witnesses against Bankman-Fried, who has repeatedly denied intentionally defrauding clients and investors.

Bankman-Fried, 30, appeared in a US courtroom 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 the $250 million is an outstanding sum, Bankman-Fried will not have to pay it unless she violates the terms of her bail agreement or appears in court. The atypical bail plan was agreed as part of his commitment to drop his extradition fight.

After appearing in court, Bankman-Fried is spotted in the business class lounge at John F. Kennedy International Airport in New York. Crypto reporter Tiffany Fong too tweeted the photo shows 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’s and Wang’s guilty pleas.

A federal judge said Thursday that Bankman-Fried will be indicted on eight felony counts, including fraud and conspiracy, at an unspecified future date.

Prosecutors allege that Bankman-Fried orchestrated “one of the largest financial frauds in American history,” stealing billions of dollars from FTX clients to cover Alameda losses and enrich himself. If convicted, he could face life in prison.

Bankman-Fried, before his arrest in the Bahamas earlier this month, tried to portray himself as a down-on-his-luck entrepreneur who had tripped over his skis. He repeatedly apologized to FTX customers and staff, saying that he was “Fuck you,” while denying that he knowingly deceived anyone.

— CNN’s Lauren del Valle and Kara Scannell contributed reporting.

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