Caroline Ellison told the judge that she agreed with Sam Bankman-Fried, to provide “misleading financial statements to Alameda lenders.”

Caroline Ellison, the former CEO of algorithmic trading firm Alameda, told the judge that she agreed with former FTX CEO Sam Bankman-Fried to provide “misleading financial statements to Alameda’s lenders“.

According to the transcript of his court address, delivered on December 19 but kept under seal until Bankman-Fried was released three days later on $250 million bail, Ellison told U.S. District Court Judge Ronnie Abrams:”I am so sorry for what I did – I knew it was wrong“.

The court asked him to clarify. “Did you also know that it was illegal?

Yes“Caroline Ellison replied.

Caroline Ellison, along with FTX co-founder Gary Wang, pleaded guilty last week to federal charges in connection with their role in the fraud that contributed to FTX’s collapse, and both are cooperating with the Southern District of New York. News of their plea agreements was withheld until Sam Bankman-Fried was en route to the United States from the Bahamas.

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

I have agreed with Sam Bankman-Fried and others not to publicly disclose the true nature of the relationship between Alameda and FTX, including the Alameda credit agreement“, she said.

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The transcript was reviewed and reported separately by The New York Times, Reuters and Bloomberg. Portions were also posted on Twitter by Matthew Russell Lee of Inner City Press.

Ellison’s statement confirmed earlier reports that Alameda was receiving special treatment from FTX, being able to freely withdraw money from his sister company.

I understood that FTX executives had set up special parameters on Alameda’s account that allowed Alameda to maintain negative balances in various fiat currencies and crypto-currencies“, she said. “In practical terms, this arrangement allowed Alameda to access 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 liquidation protocols.

Caroline Ellison further admitted that she and others knew when Alameda was overleveraged, and what that meant.

I understood that if Alameda’s FTX accounts had large negative balances in a particular currency, it meant that Alameda was borrowing the funds that FTX customers deposited on the exchange.

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As for Sam Bankman-Fried, Caroline Ellison said that he and other executives had obtained loans from Alameda, which was meanwhile making ” many large, illiquid, risky investments. “

To repay these loans, Caroline Ellison says she “agreed with others“to borrow billions of dollars from FTX.

I understand that FTX would need to use customer funds to finance its loans to Alameda“, she said. “Most FTX customers did not expect FTX to lend their digital assets and fiat currency deposits to Alameda in this manner.

Caroline Ellison also had a message for the victims of the collapse of the company.

I want to apologize for my actions to affected FTX customers, Alameda lenders and FTX investors“, she said. “Since FTX and Alameda collapsed in November 2022, I have worked hard to help recover assets for the benefit of customers and to cooperate with the government’s investigation.

I am here today to accept responsibility for my actions by pleading guilty“, she concluded.

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