(Bloomberg) -- Former Alameda Research CEO Caroline Ellison said she and FTX co-founder Sam Bankman-Fried knowingly misled lenders about how much the trading firm was borrowing from the cryptocurrency exchange.
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Ellison gave her first public account of her actions in a Dec. 19 plea hearing in Manhattan federal court. “I knew that it was wrong,” she said, according to a transcript of the hearing.
Bankman-Fried, 30, is charged with orchestrating a yearslong fraud in which he used billions of dollars of FTX customer funds for personal expenses and high-risk bets through Alameda, the cryptocurrency exchange’s sister trading house.
Ellison and FTX co-founder Gary Wang, who also appeared in a Dec. 19 hearing, have pleaded guilty to fraud charges and are cooperating with Manhattan federal prosecutors.
“From 2019 through 2022, I was aware that Alameda was provided access to a borrowing facility on FTX.com, the cryptocurrency exchange run by Mr. Bankman-Fried,” Ellison said, adding, “In practical terms, this arrangement permitted Alameda access to an unlimited line of credit without being required to post collateral, without having negative balances and without being subject to margin calls on FTX.com’s liquidation protocols.”
Ellison said, “I understood that if Alameda’s FTX accounts had significant negative balances in any particular currency, it meant that Alameda was borrowing funds that FTX’s customers had deposited on the exchange.”
She said she and Bankman-Fried agreed to conceal this arrangement from lenders and crafted false financial statements to hide the amount of Alameda’s borrowing.
Wang in his plea hearing said he was “directed” to make changes to the FTX platform’s code that he knew would give Alameda special privileges, and that misrepresentations were being made to customers and investors.
“I know what I was doing was wrong,” Wang said.
(Updates with detail from plea hearing transcripts.)
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