Bankman-Fried Associate has admitted to misusing FTX clients’ funds

Carolyn Ellison, a former close associate of Sam Bankman-Fried, said she and the founder of FTX hid the fact that they were using customer deposits from a cryptocurrency exchange to make “illiquid” investments that were later blamed for the company’s collapse in November.

Ellison, the former head of FTX trading subsidiary Alameda Research who pleaded guilty to seven felony counts Monday, told a New York judge that from 2019 to 2022, the company had access to an “unlimited credit limit on” and that it “knew it It was a mistake,” according to a transcript of the hearing made available Friday.

“I understand that FTX executives have implemented special settings on the Alameda account to maintain negative balances in various fiat and cryptocurrencies,” Ellison said at the hearing, just days before the extradition of Bankman-Fried from the Bahamas to the US. .

She added that she “understood that if Alameda FTX accounts had large negative balances in any given currency, that meant Alameda was borrowing money deposited by FTX clients.”

Ellison said these arrangements were hidden from FTX clients and investors alike. She has agreed to cooperate with the government in the case against Bankman-Fried, which US prosecutors accuse of masterminding “one of the largest financial frauds in American history.”

The murky relationship between Bahamas-based FTX and Alameda played a major role in the demise of a once $32 billion stock exchange, which spawned numerous legal investigations and potential losses for millions of creditors including retail investors.

Ellison’s testimony on Monday afternoon was kept under wraps for several days. Federal prosecutors argued that disclosure of her plea could make it more difficult to persuade Bankman-Fried, who has been charged with eight felony charges, to allow himself to return from the Bahamas to New York and be arraigned.

While attorneys for the former billionaire said Bankman Fried would agree to extradite him, prosecutor Danielle Sassoon told the judge during Monday’s hearing, “There have been some problems in the Bahamas courtroom.”

“We believe it would likely thwart our law enforcement objectives for his extradition if Ms. Ellison’s cooperation were revealed at this time,” Sassoon said.

The US Attorney’s Office announced Wednesday night Ellison’s petition agreement, as well as that of the FTX co-founder, once Bankman-Fried was on its way to the US.

During the proceedings on Monday, the government said it had evidence from several witnesses, as well as Signal and Slack messages and financial records that would implicate Ellison and Wang.

Both are expected to testify against Sam Bankman-Fried, should the case against him go to trial. The founder of FTX was released on bail Thursday after agreeing to a $250 million bail and agreeing to be a resident of his parents’ home in Palo Alto, California.

Before his arrest in the Bahamas last week, Bankman-Fried asserted that while he “made a lot of mistakes” in FTX, he “didn’t intentionally mix funds” in the exchange with Alameda. Bankman-Fried, who founded FTX and Alameda, has long said that the two groups operate independently.

Additional reporting by Nico Asgari

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