Caroline Ellison Apologizes for Misconduct in FTX Collapse

Ms. Ellison, 28 years old, and former FTX chief technology officer

Gary Wang,

29, pleaded guilty Monday during separate hearings in sealed courtrooms. Both agreed to cooperate with the government’s investigation in exchange for the prospect of lighter sentences.

Ms. Ellison, a former romantic partner of Mr. Bankman-Fried, pleaded guilty to seven criminal counts, including fraud, conspiracy and money laundering. During her hearing, she admitted to conspiring to use billions of dollars from FTX customer accounts to repay loans Alameda had taken out to make risky investments.

FTX executives had enacted special settings that granted Alameda access to an unlimited line of credit without having to post collateral, pay interest on negative balances or be subject to margin calls, she said.

“I also understood that many FTX customers invested in crypto derivatives and that most FTX customers did not expect that FTX would lend out their digital asset holdings and fiat currency deposits to Alameda in this fashion,” she said.

Ms. Ellison also said she and Mr. Bankman-Fried worked with others to conceal the arrangement from lenders, including by hiding on quarterly balance sheets the extent of Alameda’s borrowing and the billions of dollars in loans that the firm had made to FTX executives and associates. Mr. Bankman-Fried was among the executives who received loans from Alameda, she said.

Under questioning from the judge, Ms. Ellison said she knew what she was doing was illegal.

She said that since FTX’s implosion, she has worked hard to assist in the recovery of customers’ assets and aid the government’s investigation. 

At the hearing, U.S. District Judge

Ronnie Abrams

granted the request of federal prosecutors to temporarily seal all documents connected to Ms. Ellison’s plea agreement. At the time, Mr. Bankman-Fried was in a jail in the Bahamas after the Justice Department requested local police arrest him, and he had not yet formally consented to his transfer to U.S. custody. 

“We’re still expecting extradition soon, but given that he has not yet entered his consent, we think it could potentially thwart our law enforcement objectives to extradite him if Ms. Ellison’s cooperation were disclosed at this time,” Assistant U.S. Attorney

Danielle Sassoon

told Judge Abrams. 

A lawyer for Ms. Ellison declined to comment. Ms. Ellison was ordered released on $250,000 bond at her plea hearing. A spokesman for the U.S. attorney’s office in Manhattan declined to comment. 

Mr. Wang pleaded guilty in front of the same judge. He told Judge Abrams he knew what he was doing was illegal and wrong. “As part of my employment at FTX, I was directed to and agreed to make certain changes to the platform’s code,” he said, adding that he executed the changes knowing they would give Alameda Research special privileges on the FTX platform.

A lawyer for Mr. Wang declined to comment. He has previously said that Mr. Wang takes his responsibilities as a cooperating witness seriously.

The Justice Department charged Mr. Bankman-Fried earlier this month with eight counts of fraud and conspiracy connected to the implosion of his company. He was released from custody on a $250 million bond on Thursday after making his first court appearance in New York following his extradition from the Bahamas. A federal magistrate judge set strict restrictions on Mr. Bankman-Fried, including ordering him to stay in his parents’ Palo Alto, Calif., home and be under electronic monitoring. 

Mr. Bankman-Fried has said he made mistakes that contributed to FTX’s demise, but he has denied engaging in fraud.

Write to Corinne Ramey at corinne.ramey@wsj.com and James Fanelli at james.fanelli@wsj.com