Wall Street Times

Caroline Ellison implicates Sam Bankman-Fried

Image source: Daily Mail

Caroline Ellison: The previous CEO of FTX’s sister firm, Alameda, claimed before a judge that with Sam Bankman-Fried, she provided misleading financial information to lenders.

In delivering “materially misleading financial statements to Alameda’s lenders,” Ellison agreed with the former FTX CEO.

The news

The transcript of Caroline Ellison’s courtroom testimony was handed down on December 19 but remained confidential until SBF was released on a $250 million bond three days later.

Judge Ronnie Abrams of the US District Court was told by the former Alameda CEO, “I am truly sorry for what I did – I knew that it was wrong.”

“Did you also know that it was illegal?” the court asked her to clarify.

“Yes,” Ellison answered.

Federal charges

For their roles in the frauds that caused FTX to collapse, Caroline Ellison and FTX co-founder Gary Wang pleaded guilty to federal charges last week.

Attorneys for the Southern District of New York revealed on Wednesday that charges had been brought against the two.

They are charged for their participation in a scheme to deceive equity investors, according to the Securities and Exchange Commission.

The Commodities Futures Trading Commission (CFTC) said that it updated its fraud complaint.

Ellison and Wang, according to US Attorney Damian Williams, entered guilty pleas.

Williams also expressed gratitude to the Justice Department’s Office of International Affairs, the Bahamas, and the United States Embassy in the Bahamas for their assistance.

The Southern District of New York is collaborating with Caroline Ellison and Gary Wang.

They kept their plea deals a secret until Sam Bankman-Fried was on his way from the Bahamas to the US.

Read also: Sam Bankman-Fried to live with parents after $250 million bail

The financial statements

The misleading financial statements, according to Caroline Ellison, were derived from “quarterly balance sheets that concealed the extent of Alameda’s borrowing and the billions of dollars in loans that Alameda had made.”

“I agreed with Mr. Bankman-Fried and others not to publicly disclose the true nature of the relationship between Alameda and FTX, including Alameda’s credit arrangement,” said Ellison.

The following read the transcript and submitted their reports:

  • New York Times
  • Reuters
  • Bloomberg

Parts of the transcript were also posted on Twitter by Matthew Russell Lee of Inner City Press.

Early reports

FTX and Alameda personnel were reportedly either aware of or uninformed of what was going on between the two businesses, according to reports that surfaced last week.

Up until Ellison and Wang entered guilty pleas to their charges, the division was the subject of rumors.

However, Caroline Ellison’s remarks confirmed earlier rumors that FTX gave Alameda special privileges.

Alameda was allowed to take money out of its sister company.

Ellison said:

“I understood that FTX executives had implemented special settings on Alameda’s FTX.com account that permitted Alameda to maintain negative balances in various fiat currencies and crypto currencies.”

“In practical terms, this arrangement permitted Alameda access to an unlimited line of credit without being required to post collateral, without having to pay interest on negative balances and without being subject to margin calls or FTX.com’s liquidation protocols.”

The former CEO of Alameda acknowledged that she and others knew the company had too much debt and what it entailed.

“I understood that if Alameda’s FTX accounts had significantly negative balances in a particular currency,” she continued.

“It meant that Alameda was borrowing funds that FTX’s customers deposited onto the exchange.”

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Sam Bankman-Fried and other executives, according to Caroline Ellison, received loans from Alameda while engaging in a number of “large illiquid venture investments.”

She disclosed that she and others had agreed to borrow from FTX in the billions of dollars to pay back the loans.

“I understood that FTX would need to use customer funds to finance its loans to Alameda,” Ellison shared.

“Most FTX customers did not expect that FTX would lend out their digital asset holdings and fiat currency deposits to Alameda in this fashion.”

Caroline Ellison also spoke to the FTX collapse victims, saying:

“I want to apologize for my actions to the affected customers of FTX, lenders to Alameda, and investors in FTX.”

“Since FTX and Alameda collapsed in November 2022, I have worked hard to assist with the recovery of assets for the benefit of customers and to cooperate with the government’s investigation.”

“I am here today to accept my responsibility for my actions by pleading guilty.”


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