Bankman-Fried, FTX execs received billions in hidden loans

Caroline Ellison, Bankman-Fried’s colleague, said she agreed with him to hide the loans from FTX investors.

A person walks past the FTX Arena, where the Miami Heat basketball team plays.
Sam Bankman-Fried founded FTX in 2019 and rode a boom in the values of Bitcoin and other digital assets to become a billionaire several times over [File: Marta Lavandier/AP Photo]

Sam Bankman-Fried and other FTX executives have received billions of dollars in secret loans from the crypto mogul’s Alameda Research, the hedge fund’s former chief told a judge in the United States when she pleaded guilty to her role in the exchange’s collapse.

Caroline Ellison, former chief executive of Alameda Research, said she agreed with Bankman-Fried to hide from FTX’s investors, lenders and customers that the hedge fund could borrow unlimited sums from the exchange, according to a transcript of her December 19 plea hearing that was unsealed on Friday.

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

Ellison and FTX cofounder Gary Wang pleaded guilty and are cooperating with prosecutors as part of their plea agreements. Their sworn statements offer a preview of how two of Bankman-Fried’s former associates might testify at trial against him as prosecution witnesses.

In a separate plea hearing, also on December 19, Wang said he was directed to make 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 specify who gave him those directions.

Nicolas Roos, a prosecutor, said in court on Thursday that Bankman-Fried’s trial would include evidence from “multiple cooperating witnesses”. Roos said Bankman-Fried carried out a “fraud of epic proportions” that led to the loss of billions of dollars of customer and investor funds.

The unravelling

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

Bankman-Fried founded FTX in 2019 and rode a boom in the values 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 FTX funds with Alameda prompted FTX to declare bankruptcy on November 11.

Bankman-Fried, 30, was released on Thursday on $250m 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 loans they had made to Alameda, she agreed with others to borrow billions of dollars in FTX customer funds to repay them, understanding that customers were not aware of the arrangement.

“I am truly sorry for what I did,” Ellison said, adding that she is helping to recover customer assets.

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

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

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

A judge ordered him confined to his parents’ California home until trial.

Source: Reuters