Alameda's Caroline Ellison says Sam Bankman-Fried hid risky bets with FTX funds

Caroline Ellison, a former close colleague of Sam Bankman-Fried, said she and the FTX founder concealed the fact that they used customer deposits from the cryptocurrency exchange to make "illiquid" investments that were later blamed for the company's collapse in November.

Ellison, the former head of FTX trading subsidiary Alameda Research who pleaded guilty to seven criminal charges on Monday, told a New York judge that the firm had access to "an unlimited line of credit on FTX.com" from 2019 to 2022 and that she "knew it was wrong," according to a transcript of the hearing made available Friday.

“It is my understanding that FTX executives made special settings on Alameda’s FTX.com account to maintain negative balances in various fiat currencies and cryptocurrencies,” Ellison said at the hearing, just days before Bankman-Fried was extradited from the Bahamas to the United States.

She added that she “understood that if Alameda’s FTX accounts had significant negative balances in a particular currency, this meant that Alameda was borrowing funds that FTX customers had deposited.”

These agreements were concealed from both FTX customers and investors, Ellison said under oath. She has agreed to cooperate with the government on the Bankman-Fried case.

The murky relationship between Bahamas-based FTX and Alameda has played a central role in the downfall of an exchange that was once valued at $32 billion.

Ellison's statement Monday afternoon was kept secret for days. Federal prosecutors had argued that disclosing her plea deal could make it harder to persuade Bankman-Fried, who is charged with eight felonies, to allow himself to be transported back to New York from the Bahamas to stand trial.

While the former billionaire's lawyers had said Bankman-Fried would agree to extradition, "there were some hiccups in the Bahamian courtroom," prosecutor Danielle Sassoon told the judge during Monday's hearing.

“We believe that disclosing Ms. Ellison’s cooperation at this time could potentially frustrate our law enforcement goals to extradite him,” Sassoon argued.

Ellison's plea agreement, as well as that of FTX co-founder Gary Wang, was announced by the U.S. Attorney's Office on Wednesday evening as Bankman-Fried was en route to the United States.

During Monday's trial, the government said it had evidence from multiple witnesses as well as Signal and Slack messages and financial records implicating Ellison and Wang.

Both are expected to testify against Sam Bankman-Fried if the case against him goes to trial. The FTX founder was released on bail on Thursday after agreeing to a $250 million bond and agreeing to be confined to his parents' home in Palo Alto, California.

Before his arrest in the Bahamas last week, Bankman-Fried claimed that while he "made many mistakes" at FTX, he "did not knowingly commingle funds" on the exchange with Alameda's. Bankman-Fried, who founded FTX and Alameda, had long said the two groups operated independently.

Additional reporting by Nikou Asgari