Caroline Ellison, the former CEO of Alameda Research, has admitted to deliberately deceiving lenders about loan amounts they took from FTX, along with co-founder Sam Bankman-Fried. Ellison made this admission during her first public explanation of her actions during a plea hearing in a Manhattan federal court on December 19.
According to the transcript of the plea hearing, Ellison agreed that from 2019 to 2022, FTX allowed Alameda to receive billion-dollar loans without posting collateral. The agreement also permitted Alameda to borrow unlimited amounts and be free of negative balances and margin calls on FTX’s liquidation protocols.
How the confession affects Sam Bankman-Fried
Sam Bankman-Fried is facing charges related to the fraud he perpetuated at FTX. He and Ellison diverted customer funds from FTX to Alameda and used these funds to participate in shady and high-risk trading activities, invested in real estate and other companies, and donated to politicians, in the case of Bankman-Fried.
The disgraced ex-FTX boss has repeatedly denied knowing that he was putting customers at risk with his actions and also denied any knowledge of what was happening at Alameda. But Ellison and Wang, the former Chief Technology Officer at FTX, have both pleaded guilty to fraud charges and cooperated with the Manhattan federal prosecutors.
How Ellison and Bankman-Fried diverted funds
Ellison also said at the plea hearing that negative balances in any particular currency on FTX’s accounts meant that Alameda had borrowed funds that the exchange was holding for customers. She confessed that, together with Bankman-Fried, concealed this from everyone and maliciously altered financial statements to hide the funds borrowed by Alameda and FTX executives. In his plea hearing, Wang revealed that he was asked to build a back door to FTX for Alameda to get special privileges to move funds from the exchange’s holdings.
“Anytime someone says ‘Alameda,’ just substitute ‘Sam’,” a Twitter user @compound248 said on a Twitter thread “Sam owns 90% of Alameda and Gary 10%. Alameda has no clients – all that money is Sam and Gary’s, stolen fair and square.”
Sam Bankman-Fried has not made known any intention of arranging a plea deal yet. Last Thursday, he was bailed by a New York judge on a $250 million bond as prosecutors continue to gather more evidence about the criminal activities at FTX. The recent confessions by Ellison and Wang, both of whom have agreed to fully cooperate with authorities, will likely not be favourable to his case.