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Caroline Ellison pleas confirm SBF suspicions

Caroline Ellison: The former CEO of FTX’s sister company, Alameda, acknowledged in court that she had misled lenders about their financial data.

In order to provide “materially misleading financial statements” to Alameda’s lenders, Ellison Sam Bankman-Fried came to an agreement.

The news

Three days after Caroline Ellison spoke in court on December 19, the transcript of her trial evidence was made public.

Three days after Caroline Ellison spoke in court on December 19, the transcript of her trial evidence was made public.

It was kept sealed until SBF was released on a $250 million bond.

Judge Ronnie Abrams of the US District Court heard the testimony from the former CEO of Alameda, who said: “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

Last week, Caroline Ellison and Gary Wang, FTX’s other co-founder, admitted to taking part in the frauds that brought about the company’s downfall.

The two have been charged by the attorneys for the Southern District of New York on Wednesday.

They were accused by the Securities and Exchange Commission of taking part in a scheme to defraud equity investors.

The Commodities Futures Trading Commission (CFTC) reported that a modification had been made to its fraud complaint.

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

Williams also thanked the Bahamas, the US Embassy in the Bahamas, and the Justice Department’s Office of International Affairs for their assistance.

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

They kept their plea deals confidential until Sam Bankman-Fried had left the Bahamas for the US.

Read also: Sam Bankman-Fried hearing results: $250 million bail and exile to family home

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 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 reported about the transcript:

  • New York Times
  • Reuters
  • Bloomberg

In addition, Matthew Russell Lee of Inner City Press tweeted a portion of the transcript.

Early reports

The employees of FTX and Alameda were either aware of or unaware of what was happening between the two companies, according to reports that emerged last week.

Before Ellison and Wang admitted guilt to their charges, there was a lot of debate about the uncertainties.

However, Caroline Ellison’s statements confirmed rumors that FTX had treated Alameda differently.

Alameda was given permission 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.”

She asserted that she and others were aware of the significant debt the business possessed and what it implied.

“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.”

Read also: OpenSea bans Cuban artists from selling on the marketplace

SBF

Sam Bankman-Fried, according to Caroline Ellison, and other executives engaged in a series of “large illiquid venture investments” while taking out loans from Alameda.

Ellison said that she and others had agreed to borrow from FTX in the billions of dollars in order 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 apologized to the victims of the FTX collapse, 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.”

References:

Caroline Ellison ‘knew that it was wrong,’ implicates Sam Bankman-Fried

Caroline Ellison, Gary Wang plead guilty, cooperating in FTX investigation

SEC says Ellison, Wang ‘knew or were reckless in not knowing’ about FTX fraud

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