On December 23, 2022, Matthew Russell Lee of Inner City Press published the transcript of the newly revealed guilty plea of Caroline Ellison, former CEO of Alameda Research. In her statements, Ellison describes that she was co-CEO and CEO of Alameda, and in those roles, she reported directly to former FTX CEO Sam Bankman-Fried (SBF). Alameda’s former CEO’s affidavit details that she was fully aware, from 2019 to 2022, that Alameda Research had access to a special lending facility that allowed the company to maintain an unlimited unsecured line of credit. The ‘lending facility’, according to Ellison, was FTX client funds.
Caroline Ellison details FTX’s misconduct with Alameda and the mixing of client funds initiated early on
After the opening of Caroline Ellison’s plea deal, the Inner City Press reporter Matthew Russell Lee published a tweet storm which featured screenshots of the transcript of Ellison’s unsealed guilty plea. Russell Lee said the charge was “kept secret and unrecorded to this day, since Bankman-Fried was released for $250 [million] call.” If Ellison’s testimony is true, the document highlights a number of infractions in which FTX and Alameda executives have participated since 2019.
“From 2019 to 2022, I knew that Alameda had access to a lending facility on FTX.com, the cryptocurrency exchange run by Mr. Bankman-Fried. I understood that executives had implemented special settings in Alameda’s FTX.com account that allowed Alameda to maintain negative balances in fiat and cryptocurrencies,” details Ellison’s testimony. “In practical terms, this arrangement allowed Alameda access to 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 settlement protocols. ”, said the former added the CEO of Alameda.
Ellison’s account of the situation continued:
I understood that if Alameda had significant negative balances in a given currency, it meant that Alameda was borrowing funds that customers had deposited on the exchange.
Ellison understood that FTX client funds were used to ‘fund FTX loans to Alameda’, former Alameda CEO is ‘truly sorry’ for what she did
Ellison was aware that many of Alameda’s investments were illiquid, and she said she fully agreed to borrow funds from FTX’s vaults. “While I was co-CEO and then CEO, I understood that Alameda had several large illiquid investments and had lent a lot of money to Mr. Bankman-Fried and other FTX executives,” explains Ellison’s testimony. “I also understand that Alameda financed the investments with short-term and open-term loans worth several billion dollars from outside lenders in the cryptocurrency industry. Around June 2022 I agreed to borrow several billion dollars from FTX to pay off these loans. I understood that FTX would need to use customer funds to fund its loans to Alameda.”
Ellison added:
I also understood that many FTX clients invested in crypto derivatives and that most FTX clients did not expect FTX to lend their digital assets and fiat currency deposits to Alameda in this way.
Furthermore, Ellison said that between July 2022 and October 2022, she agreed with SBF to “provide materially misleading financial statements to Alameda’s creditors.” Ellison said the team gave lenders botched quarterly reports that obfuscated “the extent of Alameda’s borrowing.” The former CEO of Alameda also detailed that she was aware that investors in FTX stock were being kept in the dark about the nature of the mixed relationship between FTX and Alameda. “I agreed with Mr. Bankman-Fried and others in failing to publicly disclose the true nature of the relationship between Alameda and FTX, including the Alameda credit arrangement. I also understand that Mr. Bankman-Fried and others concealed the source and nature of these funds,” details Ellison’s account of the situation.
According to the alleged SBF 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 quite different from the SBF reports, when he managed to get a media tour for a month before he was arrested and apologized profusely. Although SBF was very apologetic, he never admitted to committing any wrongdoing in terms of fraud or committing any financial misconduct. SBF further said that he did not run Alameda Research and emphasized that he had little knowledge of the trading company’s business. Speaking virtually at the New York Times Dealbook Summit with Andrew Ross Sorkin, SBF insisted it “did not intentionally mix funds”.
As far as Alameda Research is concerned, the SBF said:
I didn’t know the size of their position. I wasn’t running Alameda – I didn’t know exactly what was going on.
Ellison’s unsealed testimony completely contradicts the SBF’s position during her media tour, and she not only apologizes, but explains a number of mistakes she personally made. “I’m sorry for what I did,” concluded Ellison. “I knew I was wrong. I want to apologize for my actions to affected FTX customers, Alameda creditors and FTX investors. Since the collapse of FTX and Alameda in November 2022, I have been working hard to help with asset recovery for the benefit of clients and to cooperate with the government investigation. I am here today to accept my responsibility for my actions by pleading guilty.” When the judge asked Ellison if she knew what she was doing was illegal, she replied “yes”.
Billionaire Bill Ackman’s Recent FTX Twitter Thread Was Criticized
Interestingly, billionaire Bill Ackman tweeted about SBF and cohorts the day before, on December 22, and decided to describe the case as a “failure” in business. “One that is “so scary that they can’t recognize it, and they do stupid things to avoid the embarrassment and the fall,” Ackman I wrote🇧🇷 Ackman’s most recent FTX thread on Twitter was not well received by the vast majority of commenters, who told Ackman that SBF and FTX are being condemned for initiating the scam early on. Ellison’s testimony even notes that her special treatment at Alameda and mixing of client funds began in 2019.
Bitcoin proponent Nic Carter, for example, responded to Ackman and said: “They were involved in fraud from day one.” Coinshares executive Meltem Demirors also responded to Ackman’s tweets and commented: “They were depositing funds from FTX clients directly into Alameda’s bank account from day one.” Ackman was remembered on several occasions in the thread that perhaps he should have read the SEC’s allegations, before claiming that FTX was a “legitimate lucrative exchange started by an MIT grad with the backing of top VCs in a massive valuation”.
What do you think of Caroline Ellison’s testimony and her side of the story? Let us know what you think about this in the comments section below.
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