Image source: Daily Mail
Caroline Ellison: The former CEO of FTX’s sister company, Alameda, testified before a judge that she and Sam Bankman-Fried misrepresented lenders about their financial information.
Ellison agreed with the former FTX CEO that Alameda’s lenders were provided “materially misleading financial statements.”
After Caroline Ellison’s trial testimony was given on December 19, SBF was not released on a $250 million bond until three days later, at which point the transcript of her testimony was released publicly.
Judge Ronnie Abrams of the US District Court listened as the former Alameda CEO 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.
Last week, Caroline Ellison and Gary Wang, the other co-founder of FTX, pleaded guilty to federal charges for their involvement in the frauds that caused the company’s collapse.
The two had been charged, according to attorneys for the Southern District of New York on Wednesday.
The Securities and Exchange Commission alleges that they were charged with participating in a scheme to defraud equity investors.
The Commodities Futures Trading Commission (CFTC) stated that a revision had been made to its fraud complaint.
Ellison and Wang, according to US Attorney Damian Williams, accepted guilty pleas.
Williams also thanked the assistance of the Bahamas, the US Embassy there, and the Justice Department’s Office of International Affairs.
The Southern District of New York is cooperating with Gary Wang and Caroline Ellison.
They didn’t disclose their plea deals until Sam Bankman-Fried was on his way from the Bahamas to the US.
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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 people reported about the transcript after reading it:
- New York Times
Matthew Russell Lee of Inner City Press tweeted a portion of the transcript.
The employees of FTX and Alameda were either aware of or oblivious of what was happening between the two companies, according to reports that surfaced last week.
Before Ellison and Wang submitted guilty to their charges, the ambiguity was the subject of much speculation.
However, Caroline Ellison’s remarks confirmed rumors that FTX had treated Alameda uniquely.
Alameda was given permission to take money out of its sister company.
“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 company’s huge debt and what it entailed were both recognized to the former Alameda CEO and others, she said.
“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, allegedly took loans from Alameda while participating in a number of “large illiquid venture investments.”
She 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 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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