Judge kept FTX execs’ plea deals secret to get Sam Bankman-Fried to US

By LARRY NEUMEISTER | Associated Press

NEW YORK — A judge agreed to a request from prosecutors to keep secret that two of Sam Bankman-Fried’s executives had turned against him, so that the cryptocurrency entrepreneur would agree to the extradition from the Bahamas to the United States not to be challenged, according to transcripts of plea agreements made public Friday.

U.S. District Judge Ronnie Abrams said Monday at the Manhattan plea hearing that transcripts of the pleas could remain sealed until Bankman-Fried reached New York.

U.S. Attorney Damian Williams announced the guilty pleas and co-operation pleas of Carolyn Ellison, 28, and Gary Wang, 29, as Bankman-Fried flew to a Westchester County airport late Wednesday in the custody of FBI agents.

Bankman-Fried, 30, appeared in federal court in Manhattan on Thursday when he was released on $250 million bail after an electronic surveillance bracelet was attached to him and he agreed to live with his parents in Palo Alto, Calif. of his process.

Ellison, the former CEO of Bankman-Fried’s cryptocurrency hedge fund trading firm, Alameda Research, and Wang, a founder of the crypto exchange FTX, agreed to testify against Bankman-Fried in connection with their pleas.

Assistant U.S. attorney Danielle Sassoon told Abrams during Ellison’s plea Monday afternoon that prosecutors had expected Bankman-Fried to agree to extradition Monday before there were “some hiccups in the Bahamian courtroom.”

“We still expect to be extradited shortly, but given that he has not yet given his consent, we believe it could potentially thwart our law enforcement objectives to extradite him if Ms Ellison’s cooperation were disclosed at this time.” , Sassoon told Abrams.

The judge was assured by Ellison’s attorney that there was no objection to the request before granting it.

“Exposure of cooperation could impede law enforcement officials’ ability to continue the ongoing investigation and may further influence Mr. Bankman-Fried’s decision to waive extradition in this case,” Abrams said.

Criminal charges against Bankman-Fried were revealed on Dec. 13, when prosecutors said the entrepreneur began defrauding customers and investors after founding FTX in 2019 by illegally diverting money to cover expenses, debts and high-risk transactions at Alameda, which was founded in 2017.

At a press conference, Williams called the crimes that enabled Bankman-Fried to make lavish real estate purchases and large political donations “one of the greatest frauds in American history”.

During her plea, Ellison said that since the FTX and Alameda collapses in November, she has “worked hard to help recover assets on behalf of clients and cooperate with the government’s investigation.”

“I really regret what I did. I knew it was wrong. And I want to apologize for my actions to the affected customers of FTX, lenders of Alameda and investors in FTX,” she said.

Ellison said that from 2019 through 2022, she knew that Alameda had accessed a loan facility on FTX.com that allowed Alameda to hold negative balances in several currencies.

She said the practical effects of the arrangement were that Alameda could access an unlimited line of credit without having to deposit collateral and without having to pay interest on negative balances or be subject to margin calls or liquidation protocols.

Ellison said she knew that if Alameda’s FTX accounts had significant negative balances in any currency, it meant Alameda was borrowing money that FTX’s clients had deposited on the exchange.

“When I was co-CEO and then CEO, I understood that Alameda had made numerous large illiquid venture investments and loaned money to Mr. Bankman-Fried and other FTX executives,” she said.

Ellison said she understood that Alameda had financed the investments with short-term and outstanding loans worth several billion dollars from third-party lenders in the cryptocurrency industry.

She said when many of those loans were recovered by lenders in June, she agreed with others to borrow several billion dollars from FTX to pay them back.

“I understood that FTX would need customer money to fund its loans to Alameda,” she said. “I also understood that many FTX clients invested in crypto derivatives and most FTX clients did not expect FTX to lend their digital asset holdings and…deposits to Alameda in this manner.”

From July to October, Ellison said, she agreed with Bankman-Fried and others to provide misleading financial statements to Alameda’s lenders, including quarterly balance sheets showing the size of Alameda’s loans and the billions of dollars in loans Alameda made to FTX- executives had provided. and related parties.

She said she knew FTX failed to disclose to its investors that Alameda could borrow unlimited amounts from FTX, putting their assets at risk.

“I have agreed with Mr. Bankman-Fried and others not to disclose the true nature of the relationship between Alameda and FTX, including Alameda’s credit agreement,” Ellison said.

During his plea earlier Monday, Wang said that between 2019 and 2022, when he worked at FTX, he was “referred to and agreed to make certain changes to the platform’s code” to give Alameda special privileges.

“I did this knowing that others were claiming to investors and customers that Alameda didn’t have such special privileges and that people were probably investing in and using FTX partly based on that misrepresentation,” he said. “I knew what I was doing was wrong.”