The mechanism of an infamy: Sam Bankman-Fried’s ex-girlfriend now tells her truth about FTX

Former Alameda Research CEO Caroline Ellison said she and FTX co-founder Sam Bankman-Fried knowingly misled lenders

December 24, 2022 09.00

Former Alameda Research CEO Caroline Ellison said she and FTX co-founder Sam Bankman-Fried knowingly misled lenders about how much the now-bankrupt trading firm was borrowing from the cryptocurrency exchange.

Ellison gave his first public account of his actions at a December 19 plea hearing in Manhattan federal court. “I knew it was wrong,” he said, according to a transcript of the hearing.. FTX co-founder Gary Wang also made a statement that day.

Caroline Ellison, FTX
Caroline Ellison

From 2019 to 2022, he was aware that Alameda had access to a lending service at FTX.com, the cryptocurrency exchange run by Mr. Bankman-Fried, Ellison said. “In practical terms, this agreement allowed Alameda to access an unlimited line of credit without having to post collateral, without having negative balances and without being subject to margin calls in FTX.com’s settlement protocols.”

Bankman-Fried, 30, is accused of orchestrating a years-long fraud in which he used billions of dollars of FTX client funds for personal spending and high-stakes gambling through Alameda. In interviews after the FTX bankruptcy, Bankman-Fried repeatedly said that he was unaware of what was going on in Alameda, a defense undermined by statements by Wang and Ellison.

Ellison and Wang have pleaded guilty to fraud charges and are cooperating with federal prosecutors in Manhattan. A representative for Bankman-Fried did not immediately respond to a request for comment on the statements by Wang and Allison. The former FTX chief executive was released on $250 million bail on Thursday.

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According to Ellison, “if Alameda’s FTX accounts had significant negative balances in any particular currency, it meant that Alameda was borrowing funds that FTX clients had deposited with the exchange.”

She said she and Bankman-Fried agreed to hide this deal from lenders and produced false financial statements to hide the amount of Alameda’s loans, including billions in loans made to FTX executives.

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Sam Bankman-Fried
Sam Bankman-Fried

At his own plea hearing, Wang said he was ordered to make code changes to the FTX platform that he knew would give Alameda special privileges, and that false statements were being made to clients and investors. Wang was CTO at FTX.

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He knew what he was doing was wrong, Wang said, according to the transcript.

and he received
Gary Wang

Ellison had previously denied that Alameda received any special treatment from FTX. We are remote and are not treated differently than other market makers, dEllison told Bloomberg News in an interview over the summer.

Prosecutors said they are using witness testimony, digital communications on apps like Signal and Slack, letters to investors and lenders, as well as software and databases associated with the collapsed FTX empire to build their case.

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