FTX: Caroline Ellison says Sam Bankman-Fried ordered her to co-mingle client funds from 2019

The testimony of Alameda’s ex-CEO details that she was fully aware from 2019 to 2022 that Alameda Research had access to a special borrowing facility that allowed the company to maintain an unlimited line of credit with zero collateral. The “loan facility,” according to Ellison, was FTX’s customer funds.

Caroline Ellison details FTX’s misconduct with Alameda and the commingling of customer funds from the very beginning.

Following the revelation of Caroline Ellison’s plea deal by Inner City Press I reporter Matthew Russell Lee published a thread of tweets which featured screenshots of the transcript of Ellison’s unsealed guilty plea. Russell Lee stated that the indictment had been “held in secret and had not been recorded until today, once Bankman-Fried was released on $250 million“If Ellison’s testimony is true, the document highlights a number of violations that FTX and Alameda executives have been involved in since 2019.

From 2019 to 2022, I was aware that Alameda had access to a borrowing facility on FTX.com, the crypto-currency exchange run by Mr. Bankman-Fried. I understood that executives had set up special parameters on Alameda’s FTX.com account that allowed Alameda to maintain negative balances in fiat currency and crypto-currencies“, Ellison’s testimony details. “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 FTX.com’s margin calls or liquidation protocols“, added Alameda’s ex-CEO.

Ellison’s account of the situation continues:

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

Ellison understood that FTX customer funds were being used to “fund FTX’s loans to Alameda,” Alameda’s ex-CEO is “truly sorry” for what she did.

Ellison was aware that many of Alameda’s investments were illiquid, and she stated that she was perfectly fine with borrowing funds from FTX’s coffers. “While I was co-CEO and then CEO, I understood that Alameda had many large illiquid investments and had loaned a lot of money to Sam Bankman-Fried and other FTX executives“, explains Ellison’s testimony. “I also understood that Alameda had financed the investments with billions of dollars worth of short-term and open-end loans from outside lenders in the crypto-currency industry. In or around June 2022, I agreed to borrow several billion dollars from FTX to repay these loans. I understood that FTX would need to use customer funds to finance its loans to Alameda.

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Ellison added:

I also understood that many FTX customers were investing in crypto derivatives and that most FTX customers did not expect FTX to lend their digital assets and fiat currency deposits to Alameda in this manner.

In addition, Ellison stated that around July 2022 to October 2022, it agreed with SBF to “provide materially misleading financial statements to Alameda’s lenders.“Ellison stated that the team served lenders with sloppy quarterly reports that obscured”the extent of Alameda’s borrowing.“Alameda’s former CEO also clarified that she knew that FTX’s equity investors were kept in the dark about the nature of the relationship between FTX and Alameda. “I 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. I also understood that Mr. Bankman-Fried and others concealed the source and nature of these funds“, Ellison’s account of the situation details.

Caroline Ellison is a 2016 Stanford graduate with a bachelor’s degree in mathematics. She then worked for quantitative trading firm Jane Street before working for Alameda Research. Ellison became an employee of Alameda in March 2018 and after Sam Trabucco left in August 2022, she became CEO. Ellison was terminated from her position by John J. Ray III on November 11, 2022, when FTX filed for Chapter 11 bankruptcy protection.

According to SBF’s alleged ex-girlfriend, Ellison said she was very sorry for what she did. At the end of her transcript, she is very apologetic for what she did. Ellison’s testimony is very different from SBF’s, who managed to go on a media tour for a month before being arrested and apologized profusely. While SBF apologized profusely, he never admitted to any wrongdoing in terms of fraud or financial misconduct. SBF further stated that he did not run Alameda Research, and emphasized that he had little knowledge of the trading firm’s business operations. Speaking virtually at the New York Times Dealbook Summit with Andrew Ross Sorkin, SBF insisted that he “did not knowingly commingle funds.”

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Regarding Alameda Research, SBF said:

I didn’t know the importance of their position. I wasn’t running Alameda – I didn’t know exactly what was going on.

Ellison’s unsealed testimony completely contradicts SBF’s position during her media tour, and she not only apologizes, but explains a number of misdeeds that she personally committed. “I am so sorry for what I did“, Ellison concluded. “I knew it was wrong. I want to apologize for my actions to the affected FTX customers, Alameda lenders and FTX investors. 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 investigation. I am here today to accept responsibility for my actions by pleading guilty.“When the judge asked Ellison if she knew that what she did was illegal, she replied “yes“.

Billionaire Bill Ackman’s recent FTX Twitter feed comes under fire.

It is interesting to note that billionaire Bill Ackman tweeted about SBF and its cohorts the day before, on December 22, and decided to describe the case as a “failure“commercial. “A failure that is “so frightening that they can’t recognize it, and they do stupid things to avoid embarrassment and downfall“, said Ackman. wrote. Ackman’s most recent Twitter thread on FTX did not go over well with a large majority of commenters who told Ackman that SBF and FTX are doomed for starting the fraud from the beginning. Ellison’s testimony even notes that his special Alameda treatment and commingling of client funds began in 2019.

Bitcoin developer Nic Carter, for example, responded to Ackman and FTX. said: “They engaged in fraud from day one.“Coinshares executive Meltem Demirors also responded to Ackman’s tweets and remarked:They were depositing FTX customers’ funds directly into Alameda’s bank account from day one.“Ackman was recalled to several times in the thread that perhaps he should read the SEC’s charges, before claiming that FTX was a “legitimate profitable exchange launched by an MIT grad with the backing of top VCs at a massive valuation“.

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