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The judge kept the collaboration of the CEO of Alameda, co-founder of FTX, secret, so that Sam Bankman-Fried would not be frightened and fight extradition

US prosecutors in New York waited until Bankman-Fried, the founder of failed cryptocurrency exchange FTX, was in FBI custody before revealing that his business partners, Carolyn Ellison and Gary Wang, had secretly come out guilty of fraud charges and were cooperating with the investigation, which may earn them leniency in sentencing.

US Attorney Damian Williams announced the guilty pleas when Bankman-Fried was on the air late Wednesday.

Prosecutors were concerned that if Bankman-Fried discovered his friends were cooperating, he might try to fight extradition from the Bahamas, where he had been arrested at the request of US authorities.

Ellison, 28, and Wang, 29, pleaded guilty Monday in federal court in Manhattan to charges carrying a potential penalty of decades in prison.

At that hearing, Assistant U.S. Attorney Danielle Sassoon told the judge that prosecutors expected Bankman-Fried consent to extradition There were “a few snags in the Bahamas courtroom” earlier Monday.

“We are still awaiting early extradition, but given that he has not yet given his consent, we think he could potentially hinder our law enforcement goals to extradite him if Ms. Ellison’s cooperation is disclosed at this time,” he said Sassoon to the US District Judge. Ronnie Abrams.

The judge obtained assurance from Ellison’s attorney that there was no objection to the request before granting it.

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

Bankman-Fried, 30, appeared in court in New York on Thursday. He was released on condition that he lives under house arrest with his parents in Palo Alto, Californiaawaiting trial.

The home he was staying in was secured on Friday by increased security, including a Stanford University security guard posted about 50 yards (46 meters) from the home to keep out passers-by. The school president lives nearby.

Ellison is the former CEO of Bankman-Fried’s cryptocurrency hedge fund trading firm, Alameda Research. Wang co-founded FTX, the cryptocurrency exchange. Both agreed to testify in the Bankman-Fried trial.

They and Bankman-Fried are accused of defrauding customers and investors illegally diverting large sums of client money from FTX to make lavish real estate purchases, donate money to politicians and make risky trades in Alameda.

In court on Monday, Ellison from FTX and Alameda said collapsed in Novemberhe “worked hard to assist with asset recovery for the benefit of clients and to cooperate with government investigations.”

“I’m really sorry for what I did. I knew he was wrong. And I want to apologize for my actions to affected customers of FTX, creditors of Alameda and investors of FTX,” she said, according to a transcript.

Ellison said he was aware from 2019 to 2022 that Alameda had access to a lending facility on FTX.com that allowed Alameda to maintain negative balances in various currencies.

He said the practical effect of the deal was that Alameda had access to an unlimited line of credit without being required to provide collateral and without owing interest on negative balances or being subject to margin calls or liquidation protocols.

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

“While I was co-CEO and then CEO, I learned that Alameda had made several large illiquid venture capital investments and lent money to Mr. Bankman-Fried and other FTX executives,” he said.

Ellison said he understood Alameda had financed the investments with multi-billion-dollar short- and term loans from external lenders in the cryptocurrency industry.

When several of those loans were called off by lenders in June, he agreed with others to borrow several billion dollars from FTX to pay them back.

“I understood that FTX would have to use client funds to fund its Alameda loans,” he said. “I also understood that many FTX clients have invested in crypto derivatives and that most FTX clients did not expect FTX to lend their digital asset holdings and … deposits in Alameda like this.”

From July to October, Ellison said, he colluded with Bankman-Fried and others to provide misleading financial statements to Alameda lenders, including quarterly financial statements that concealed the company’s loan size and billions of dollars in loans to executives. by FTX. and other.

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

During his appeal on Monday, Wang said he made changes to computer code to allow for transactions with Alameda.

“I knew what I was doing was wrong,” she said.