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FTX founder Bankman-Fried objects to tighter bail, says prosecutors ‘sandbagged’ him

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NEW YORK, Jan 28 (Reuters) – Lawyers for Sam Bankman-Fried on Saturday urged a U.S. judge not to ban the indicted FTX cryptocurrency executive from communicating with former colleagues as part of his bail, saying prosecutors “sandbagged” the process to put their client in the “worst possible light.”

The lawyers were responding to a Friday night request by federal prosecutors that Bankman-Fried not be allowed to talk with most employees of FTX or his Alameda Research hedge fund without lawyers present, or use the encrypted messaging apps Signal or Slack and potentially delete messages automatically.

Bankman-Fried, 30, has been free on $250 million bond since pleading not guilty to charges of fraud in the looting of billions of dollars from the now-bankrupt FTX.

Prosecutors said their request was in response to Bankman-Fried’s recent effort to contact a potential witness against him, the general counsel of an FTX affiliate, and was needed to prevent witness tampering and other obstruction of justice.

But in a letter to U.S. District Judge Lewis Kaplan in Manhattan, Bankman-Fried’s lawyers said prosecutors sprung the “overbroad” bail conditions without revealing that both sides had been discussing bail over the last week.

“Rather than wait for any response from the defense, the government sandbagged the process, filing this letter at 6:00 p.m. on Friday evening,” Bankman-Fried’s lawyers wrote. “The government apparently believes that a one-sided presentation – spun to put our client in the worst possible light – is the best way to get the outcome it seeks.”

Bankman-Fried’s lawyers also said their client’s efforts to contact the general counsel and John Ray, installed as FTX’s chief executive during the bankruptcy, were attempts to offer “assistance” and not to interfere.

A spokesman for U.S. Attorney Damian Williams in Manhattan declined to comment.

Bankman-Fried’s lawyers proposed that their client have access to some colleagues, including his therapist, but not be allowed to talk with Caroline Ellison and Zixiao “Gary” Wang, who have pleaded guilty and are cooperating with prosecutors.

They said a Signal ban isn’t necessary because Bankman-Fried is not using the auto-delete feature, and concern he might is “unfounded.”

The lawyers also asked to remove a bail condition preventing Bankman-Fried from accessing FTX, Alameda or cryptocurrency assets, saying there was “no evidence” he was responsible for earlier alleged unauthorized transactions.

In an order on Saturday, Kaplan gave prosecutors until Monday to address Bankman-Fried’s concerns.

“The court expects all counsel to abstain from pejorative characterizations of the actions and motives of their adversaries,” the judge added.

Reporting by Jonathan Stempel in New York; Editing by Andrea Ricci

Our Standards: The Thomson Reuters Trust Principles.

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Feds seized nearly $700 million from FTX founder Bankman-Fried

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Jan 20 (Reuters) – Federal prosecutors have seized nearly $700 million in assets from FTX founder Sam Bankman-Fried in January, largely in the form of Robinhood stock, according to a Friday court filing.

Bankman-Fried, who has been accused of stealing billions of dollars from FTX customers to pay debts incurred by his crypto-focused hedge fund, has pleaded not guilty to fraud charges. He is scheduled to face trial in October.

The Department of Justice revealed the seizure of Robinhood shares earlier this month, but it provided a more complete list of seized assets Friday, including cash held at various banks and assets deposited at crypto exchange Binance.

The ownership of the seized Robinhood shares, valued at about $525 million, has been the subject of disputes between Bankman-Fried, FTX, and bankrupt crypto lender BlockFi.

The most recent asset seizure reported by the DOJ took place on Thursday, when prosecutors seized $94.5 million in cash from an account at Silvergate Bank which was associated with FTX Digital Markets, FTX’s subsidiary in the Bahamas. The DOJ seized more than $7 million from other Silvergate accounts associated with Bankman-Fried and FTX.

The DOJ previously seized nearly $50 million from an FTX Digital Markets account at Moonstone Bank, a small bank in Washington state.

DOJ also said that assets in three Binance accounts associated with Bankman-Fried were subject to criminal forfeiture, but did not provide an estimate of the value in those accounts.

Reporting by Dietrich Knauth; Editing by Noeleen Walder and Daniel Wallis

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Crypto lending unit of Genesis files for U.S. bankruptcy

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Jan 20 (Reuters) – The lending unit of crypto firm Genesis filed for U.S. bankruptcy protection on Thursday, owing creditors at least $3.4 billion, after being toppled by a market rout along with the likes of exchange FTX and lender BlockFi.

Genesis Global Capital, one of the largest crypto lenders, froze customer redemptions on Nov. 16 after the collapse of major exchange FTX sent shockwaves through the crypto asset industry, fuelling concern that other companies could implode.

Genesis is owned by venture capital firm Digital Currency Group (DCG).

Its bankruptcy filing is the latest in a string of crypto failures triggered by a market collapse that wiped about $1.3 trillion off the value of crypto tokens last year. While bitcoin has rallied so far in 2023, the impact of the market collapse has continued to hit companies in the highly interconnected sector.

The bankruptcy “doesn’t come as a shock to the markets,” said Ivan Kachkovski, currency and crypto strategist at UBS. “It remains to be seen if the chain effect would go on.”

“However, given that the funds have already been frozen for over two months and no other large crypto company reported an associated weakness, it’s likely that the contagion would be limited.”

Genesis’ lending unit said it had both assets and liabilities in the range of $1 billion to $10 billion, and estimated it had more than 100,000 creditors in its filing with the U.S. Bankruptcy Court for the Southern District of New York.

Genesis Global Holdco, the parent group of Genesis Global Capital, also filed for bankruptcy protection, along with another lending unit Genesis Asia Pacific.

Genesis Global Holdco said in a statement that it would contemplate a potential sale, or a stock-related transaction, to pay creditors, and that it had $150 million in cash to support the restructuring.

It added that Genesis’ derivatives and spot trading, broker dealer and custody businesses were not part of the bankruptcy process, and would continue their client trading operations.

CREDITORS’ CLAIMS

Genesis owes its 50 biggest creditors $3.4 billion, according to Reuters’ calculations from the bankruptcy filing. Its largest creditor is crypto exchange Gemini, which it owes $765.9 million. Gemini was founded by the identical twin cryptocurrency pioneers Cameron and Tyler Winklevoss.

Genesis was already locked in a dispute with Gemini over a crypto lending product called Earn that the two firms jointly offered to Gemini customers.

The Winklevoss twins have said Genesis owed more than $900 million to some 340,000 Earn investors. On Jan. 10, Cameron Winklevoss called for the removal of Barry Silbert as the chief executive of Digital Currency Group.

Representations of cryptocurrencies are seen in front of displayed decreasing stock graph in this illustration taken November 10, 2022. REUTERS/Dado Ruvic/Illustration

About an hour after the bankruptcy filing, Cameron Winklevoss tweeted that Silbert and Digital Currency Group continued to deny creditors a fair deal.

“Unless Barry (Silbert) and DCG come to their senses and make a fair offer to creditors, we will be filing a lawsuit against Barry and DCG imminently,” Winklevoss said in his tweet thread.

DCG did not immediately respond to a Reuters request for comment on the tweets.

Amsterdam-based crypto exchange Bitvavo, said in December it was trying to recover 280 million euros ($302.93 million) which it had lent to Genesis.

Bitvavo said in a blog post on Friday that talks on the repayment “have not yet led to an overall agreement that works for all parties concerned” and that it would continue to negotiate.

The bankruptcy filing “brings the process of negotiations to calmer waters,” Bitvavo said.

LENDING BUSINESS

Genesis brokered digital assets for financial institutions such as hedge funds and asset managers and had almost $3 billion in total active loans at the end of the third quarter, down from $11.1 billion a year earlier, according to its website.

Last year, Genesis extended $130.6 billion in crypto loans and traded $116.5 billion in assets, according to its website.

Its two biggest borrowers were Three Arrows Capital, a Singapore-based crypto hedge fund, and Alameda Research, a trading company closely affiliated with FTX, a source told Reuters. Both are in bankruptcy proceedings.

Three Arrows debt to Genesis was assumed by its parent company Digital Currency Group (DCG), which then filed a claim against Three Arrows. DCG’s portfolio companies also include crypto asset manager Grayscale and news service CoinDesk.

Crypto lenders, which acted as the de facto banks, boomed during the pandemic. But unlike traditional banks, they are not required to hold capital cushions. Earlier this year, a shortfall of collateral forced some lenders – and their customers – to shoulder large losses.

($1 = 0.9243 euros)

Reporting by Tom Hals in Wilmington, Delaware, Akanksha Khushi, and Elizabeth Howcroft in London; Editing by Lananh Nguyen, Clarence Fernandez, Kim Coghill, Ira Iosebashvili and Sharon Singleton

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Davos 2023: Cowed crypto crowd feel winter freeze at WEF

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DAVOS, Switzerland, Jan 19 (Reuters) – In the snow and ice on the main drag in Davos, the impact of the crypto winter is plain for WEF attendees to see.

Last May, the dressed-up shop fronts that line both sides of the Promenade street running through the Swiss ski resort were dominated by crypto firms, rolling in bitcoin.

Now there are just a handful and the executives who have made it to Davos have swapped their hoodies for blazers, despite sub-zero temperatures outside.

Some of those from the digital industry which have set up shop on the fringes of the World Economic Forum (WEF) annual meeting were quick to distance themselves from cryptocurrencies.

“I hope there’s an increased focus on utility value and practical applications of the technology, and less focus on retail investors chasing meme coins,” Jeremy Allaire, CEO of USDC stablecoin issuer Circle, said.

“There was a lot of nonsense,” Allaire told the Reuters Global Markets Forum.

Former Reserve Bank of India Governor Raghuram Rajan believes last year’s plunge in digital assets allows investors to focus on the true value of the technology.

“We’re at the right place now in terms of crypto,” he said.

Executives in Davos said they are now all about blockchain technology, proper controls and regulation, and the promise of disruption that it holds for financial services and beyond.

“We are an infrastructure, plumbing play. We build infrastructure today for digital assets, which is crypto. Tomorrow it will be different assets,” said Dmitry Tokarev, chief executive of Copper, which provides custody services.

“I would question some of the stuff that I saw, ‘What is the return on that?'” Tokarev added, referring to the big presence of crypto companies at the last WEF meeting, which was unusually held in May as a result of the COVID-19 pandemic.

“We have been always ignoring the noise. All our partners were here last year. They are here this year,” Tokarev added.

The world of digital assets has changed drastically since May, with the value of the crypto market plummeting and some of the major crypto companies going under as investors pulled back from riskier assets in the face of rising interest rates.

The market capitalization of crypto currencies has shrunk by $1.4 trillion, a third of its value from peaks hit in late 2021 and some of the best-known crypto firms are under stress or have gone under, including the collapse of crypto exchange FTX.

“There is a place for trading use cases but they cannot be the singular focus, we need to move to more real use cases and put attention there,” said Denelle Dixon, CEO of Stellar Development Foundation, which supports the Stellar blockchain.

‘DODGED A BULLET’

While interest remains in the technology, the conversation is turning to responsibility.

Colm Kelleher, chairman of Swiss bank UBS (UBSG.S), told a WEF panel that blockchain technology will help reduce costs for banks. But he said the industry needed to figure out the basics, such as anti-money laundering controls.

“We kind of dodged a bullet,” Kelleher said, noting that the collapse in the value of crypto currencies had not caused systemic problems. “We did have investors who did want to invest in coinage. And we had to draw a line on what was suitable for those investors,” he added.

Yat Siu, co-founder of Hong Kong-based blockchain gaming developer Animoca Brands, was supportive of the firms in Davos.

“These are companies with serious cash positions and revenue generating companies,” Siu said. “They’re billion dollar enterprises.”

Crypto is trying to establish its presence, SkyBridge Capital founder Anthony Scaramucci said, adding “there’s nothing more establishment than the World Economic Forum.” Scaramucci maintains a bullish stance on crypto despite losses last year.

Back on the Davos Promenade, some signs of crypto’s lost swagger endure.

Parked right outside a pavilion promoting blockchain early in the week was a bright orange Mercedes.

On the hood, instead of the carmaker’s insignia was a copper-colored symbol for bitcoin.

The tires carried a slogan in white: “In Bitcoin we trust”.

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Additional reporting by Lananh Nguyen in Davos, Stefania Spezzati and Lisa Mattackal; Editing by Alexander Smith

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Crypto lender Genesis preparing to file for bankruptcy, Bloomberg News reports

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Jan 18 (Reuters) – Cryptocurrency lender Genesis Global Capital is planning to file for bankruptcy as soon as this week, Bloomberg News reported on Wednesday, citing people with knowledge of the situation.

A bankruptcy filing has been expected for weeks, after the company froze customer redemptions on Nov. 16 following the downfall of major cryptocurrency exchange FTX.

The collapse of FTX in November has claimed several victims including crypto lender BlockFi and Core Scientific Inc , one of the biggest publicly traded crypto mining companies in the United States, both of which filed for bankruptcy protection in the following months.

Genesis, its parent Digital Currency Group and creditors have exchanged several proposals, but have so far failed to come to an agreement, the Bloomberg report said, adding that Kirkland & Ellis and Proskauer Rose have been advising groups of creditors.

Genesis did not immediately respond to a Reuters request for comment.

Genesis is also locked in a dispute with Gemini, founded by the identical twin crypto pioneers Cameron and Tyler Winklevoss.

Gemini offered a crypto lending product called Earn in partnership with Genesis, and now says Genesis owes it $900 million in connection with that product.

The U.S. Securities and Exchange Commission last week said it had charged Genesis and Gemini with illegally selling securities to hundreds of thousands of investors through their crypto lending program.

Reporting by Niket Nishant and Mehnaz Yasmin in Bengaluru; Editing by Sriraj Kalluvila

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Failed crypto exchange FTX has recovered over $5 bln, attorney says

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  • FTX valued a year ago at $32 bln
  • Over $8 billion in FTX customer funds missing
  • Plan to sell FTX affiliates presented in court

NEW YORK/WILMINGTON, Del., Jan 11 (Reuters) – Crypto exchange FTX has recovered more than $5 billion in liquid assets but the extent of customer losses in the collapse of the company founded by Sam Bankman-Fried is still unknown, an attorney for the company told a U.S. bankruptcy court on Wednesday.

The company, which was valued a year ago at $32 billion, filed for bankruptcy protection in November and U.S. prosecutors accused Bankman-Fried of orchestrating an “epic” fraud that may have cost investors, customers and lenders billions of dollars.

“We have located over $5 billion of cash, liquid cryptocurrency and liquid investment securities,” Andy Dietderich, an attorney for FTX, told U.S. Bankruptcy Judge John Dorsey in Delaware at the start of Wednesday’s hearing.

Dietderich also said the company plans to sell nonstrategic investments that had a book value of $4.6 billion.

However, Dietderich said the legal team is still working to create accurate internal records and the actual customer shortfall remains unknown. The U.S. Commodities Futures Trading Commission has estimated missing customer funds at more than $8 billion.

Dietderich said the $5 billion recovered does not include assets seized by the Securities Commission of the Bahamas, where the company was headquartered and Bankman-Fried resided.

FTX’s attorney estimated the seized assets were worth as little as $170 million while Bahamian authorities put the figure as high as $3.5 billion. The seized assets are largely comprised of FTX’s proprietary and illiquid FTT token, which is highly volatile in price, Dietderich said.

ASSET SALES

FTX could raise additional funds in the coming months for the benefit of customers after Dorsey approved FTX’s request for procedures to explore sales of affiliates at Wednesday’s hearing.

The affiliates — LedgerX, Embed, FTX Japan and FTX Europe — are relatively independent from the broader FTX group, and each has its own segregated customer accounts and separate management teams, according to FTX court filings.

The crypto exchange has said it is not committed to selling any of the companies, but that it received dozens of unsolicited offers and plans to hold auctions beginning next month.

The U.S. Trustee, a government bankruptcy watchdog, opposed selling the affiliates before the extent of the alleged FTX fraud is fully investigated.

In part to preserve the value of its businesses, FTX also sought Dorsey’s approval to keep secret 9 million FTX customer names. The company has said that privacy is needed to prevent rivals from poaching users but also to prevent identity theft and to comply with privacy laws.

Dorsey allowed the names to remain under wraps for only three months, not six months as FTX wanted.

“The difficulty here is that I don’t know who’s a customer and who’s not,” Dorsey said. He set a hearing for Jan. 20 to discuss how FTX will distinguish between customers and said he wants FTX to return in three months to give more explanation on the risk of identity theft if customer names are made public.

Media companies and the U.S. Trustee had argued that U.S. bankruptcy law requires disclosure of creditor details to ensure transparency and fairness.

In addition to selling affiliates, a company lawyer on Wednesday said FTX will end its 19-year $135 million sponsorship deal with the NBA’s Miami Heat and a 7-year about $89 million deal with the League of Legends video game.

FTX’s founder, Bankman-Fried, 30, was indicted on two counts of wire fraud and six conspiracy counts last month in Manhattan federal court for allegedly stealing customer deposits to pay debts from his hedge fund, Alameda Research, and lying to equity investors about FTX’s financial condition. He has pleaded not guilty.

Bankman-Fried has acknowledged shortcomings in FTX’s risk management practices, but the one-time billionaire has said he does not believe he is criminally liable.

In addition to customer funds lost, the collapse of the company has also likely wiped out equity investors.

Some of those investors were disclosed in a Monday court filing, including American football star Tom Brady, Brady’s former wife supermodel Gisele Bündchen and New England Patriots owner Robert Kraft.

Reporting by Dietrich Knauth in New York and Tom Hals in Wilmington, Del.; Editing by Alexia Garamfalvi, Mark Porter, Matthew Lewis and Anna Driver

Our Standards: The Thomson Reuters Trust Principles.

Tom Hals

Thomson Reuters

Award-winning reporter with more than two decades of experience in international news, focusing on high-stakes legal battles over everything from government policy to corporate dealmaking.

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Exclusive: FTX’s former top lawyer aided U.S. authorities in Bankman-Fried case

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Jan 5 (Reuters) – FTX’s former top lawyer Daniel Friedberg has cooperated with U.S. prosecutors as they investigate the crypto firm’s collapse, a source familiar with the matter said, adding pressure on founder Sam Bankman-Fried who was arrested on criminal fraud charges last month.

Friedberg gave details about FTX in a Nov. 22 meeting with two dozen investigators, the person said. The meeting, held at the U.S. Attorney for the Southern District of New York’s office included officials from the Justice Department, Federal Bureau of Investigation, and the U.S. Securities and Exchange Commission, the source said. Emails between attendees scheduling the meeting with those agencies were seen by Reuters.

At the meeting, he told prosecutors what he knew of Bankman-Fried’s use of customer funds to finance his business empire, the source said. Friedberg recounted conversations he had with other top executives on the subject and provided details of how Bankman-Fried’s hedge fund Alameda Research functioned, the source said.

Friedberg’s cooperation has not been previously reported. He has not been charged and has not been told he is under criminal investigation, the source said. Instead, he expects to be called as a government witness in Bankman-Fried’s October trial, the person said.

Friedberg’s lawyer, Telemachus Kasulis, the FBI and FTX did not respond to requests for comment on his cooperation. The SEC, the Department of Justice and Bankman-Fried’s spokesman declined to comment.

Bankman-Fried is accused of diverting billions of dollars in FTX client funds to Alameda to bankroll venture investments, luxury real estate purchases, and political donations. On Tuesday, he pleaded not guilty in Manhattan federal court.

Manhattan U.S. Attorney Damian Williams, who is leading the criminal case against now bankrupt FTX, said last month: “If you participated in misconduct at FTX or Alameda, now is the time to get ahead of it.”

Two of Bankman-Fried’s closest associates, Caroline Ellison, Alameda’s former chief executive, and Gary Wang, FTX’s former chief technology officer, pleaded guilty to fraud and agreed to cooperate. A lawyer for Ellison didn’t respond to a request for comment. Wang’s lawyer declined to comment.

MEETING WITH PROSECUTORS

FTX filed for bankruptcy protection on Nov. 11. A few days later, on Nov. 14, Friedberg received a call from two FBI agents based in New York. He told them he was willing to share information but needed to ask FTX to waive his attorney-client privilege, according to a person familiar with the matter and emails viewed by Reuters.

Friedberg wrote to FTX the next day asking the company to waive his privilege so he could cooperate with prosecutors, according to the email seen by Reuters. FTX did not do so, but agreed with Friedberg on the points he could disclose to investigators, the person said.

Friedberg then wrote back to the two FBI agents, telling them in an email reviewed by Reuters: “I want to cooperate in all respects.”

The U.S. Attorney’s Office set up a meeting where Friedberg signed so-called proffer letters prepared for him by the SEC and other agencies, according to the source and an email exchanged by participants. Proffer letters typically describe a potential agreement between authorities and individuals who are witnesses or subjects of an investigation.

“THROUGH THICK AND THIN”

Prior to his work advising FTX, Friedberg advised a mix of banking, fintech, and online gaming companies.

One of his previous employers, a Canadian online gaming firm named Excapsa Software, where he was general counsel, also drew controversy due to a cheating scandal involving a poker site it operated called Ultimate Bet. A Canadian gaming commission in 2008 fined Ultimate Bet $1.5 million for failing to enforce measures to prevent fraudulent activities. Excapsa has since dissolved.

According to an audio recording available on the website PokerNews, Friedberg and some other Ultimate Bet associates privately discussed that year how to handle the scandal and minimize the amount of refunds owed to players. Friedberg previously told NBC News that the audio was illegally recorded but NBC’s article did not say that Friedberg challenged its authenticity.

Friedberg first represented Bankman-Fried in 2017 as outside counsel while at U.S. law firm Fenwick & West, where he chaired its payment systems group, the source familiar with the matter said. At the time, the source said Friedberg advised Bankman-Fried on running Alameda, which he founded that year.

In 2020, when Bankman-Fried launched a separate exchange for U.S. customers called FTX.US, Friedberg moved in-house as FTX’s chief regulatory officer.

In a now-deleted blog post published that year on FTX’s website, Bankman-Fried wrote that Friedberg was FTX’s legal advisor “from the very beginning,” noting he had been “with us through thick and thin.”

Friedberg resigned from his position on Nov. 8, a day after Bankman-Fried disclosed to top executives that FTX was almost out of money, according to the source and three other people briefed on the talks, along with text messages his legal team exchanged at the time.

Additional reporting by Hannah Lang; editing by Megan Davies and Anna Driver

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Sam Bankman-Fried to enter plea in FTX fraud case

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NEW YORK, Dec 28 (Reuters) – Sam Bankman-Fried is expected to enter a plea next week to criminal charges he defrauded investors and looted billions of dollars in customer funds at his failed FTX cryptocurrency exchange.

The 30-year-old is expected to be arraigned on the afternoon of Jan. 3, 2023, before U.S. District Judge Lewis Kaplan in Manhattan federal court, court records on Wednesday showed.

Kaplan was assigned to the case on Tuesday, after the original judge recused herself because her husband’s law firm had advised FTX before its collapse.

Prosecutors have accused Bankman-Fried of engaging in a years-long “fraud of epic proportions,” by using customer deposits to support his Alameda Research hedge fund firm, buy real estate and make political contributions.

Bankman-Fried is charged with two counts of wire fraud and six counts of conspiracy, including to launder money and commit campaign finance violations, and if convicted could spend decades in prison.

Before his Dec. 12 arrest, Bankman-Fried acknowledged risk-management failures at FTX, but said he did not believe he was criminally liable.

Two of his associates, former Alameda chief executive Caroline Ellison and former FTX chief technology officer Gary Wang, have pleaded guilty over their roles in FTX’s collapse and agreed to cooperate with prosecutors.

A lawyer for Bankman-Fried did not immediately respond to requests for comment.

Bankman-Fried was released on Dec. 22 on a $250 million bond and ordered to stay with his parents in Palo Alto, California, where they teach at Stanford Law School. He is subject to electronic monitoring.

FTX filed for bankruptcy protection on Nov. 11. Its new chief executive, John Ray, told Congress on Dec. 13 that the exchange lost $8 billion of customer money while being run by “grossly inexperienced, non-sophisticated individuals.”

Reporting by Jonathan Stempel in New York
Editing by Matthew Lewis

Our Standards: The Thomson Reuters Trust Principles.

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Bankman-Fried, FTX execs received billions in hidden loans, ex-Alameda CEO says

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NEW YORK, Dec 23 (Reuters) – Sam Bankman-Fried and other FTX executives received billions of dollars in secret loans from the crypto mogul’s Alameda Research, the hedge fund’s former chief told a judge when she pleaded guilty to her role in the exchange’s collapse.

Caroline Ellison, former chief executive of Alameda Research, said she agreed with Bankman-Fried to hide from FTX’s investors, lenders and customers that the hedge fund could borrow unlimited sums from the exchange, according a transcript of her Dec. 19 plea hearing that was unsealed on Friday.

“We prepared certain quarterly balance sheets that concealed the extent of Alameda’s borrowing and the billions of dollars in loans that Alameda had made to FTX executives and to related parties,” Ellison told U.S. District Judge Ronnie Abrams in Manhattan federal court, according to the transcript.

Ellison and FTX co-founder Gary Wang both pleaded guilty and are cooperating with prosecutors as part of their plea agreements. Their sworn statements offer a preview of how two of Bankman-Fried’s former associates might testify at trial against him as prosecution witnesses.

In a separate plea hearing, also on Dec. 19, Wang said he was directed to make changes to FTX’s code to give Alameda special privileges on the trading platform, while being aware that others were telling investors and customers that Alameda had no such privileges.

Wang did not specify who gave him those directions.

Nicolas Roos, a prosecutor, said in court on Thursday that Bankman-Fried’s trial would include evidence from “multiple cooperating witnesses.” Roos said Bankman-Fried carried out a “fraud of epic proportions” that led to the loss of billions of dollars of customer and investor funds.

Bankman-Fried has acknowledged risk-management failures at FTX but said he does not believe he has criminal liability. He has not yet entered a plea.

Bankman-Fried founded FTX in 2019 and rode a boom in the values of bitcoin and other digital assets to become a billionaire several times over as well as an influential donor to U.S. political campaigns.

A flurry of customer withdrawals in early November amid concerns about commingling of FTX funds with Alameda prompted FTX to declare bankruptcy on Nov. 11.

Bankman-Fried, 30, was released on Thursday on $250 million bond. His spokesperson declined to comment on Ellison and Wang’s statements.

Lawyers for Wang and Ellison declined to comment.

Ellison told the court that when investors in June 2022 recalled loans they had made to Alameda, she agreed with others to borrow billions of dollars in FTX customer funds to repay them, understanding that customers were not aware of the arrangement.

“I am truly sorry for what I did,” Ellison said, adding that she is helping to recover customer assets.

Wang also said he knew what he was doing was wrong.

The transcript of Ellison’s hearing was initially sealed out of concern that the disclosure of her cooperation could thwart prosecutors’ efforts to extradite Bankman-Fried from the Bahamas, where he lived and where FTX was based, court records showed.

Bankman-Fried was arrested in the capital Nassau on Dec. 12 and arrived in the United States on Wednesday after consenting to extradition.

A magistrate judge ordered him confined to his parents’ California home until trial.

On Friday evening, Abrams recused herself from the case, saying in a court order that the law firm Davis Polk & Wardwell LLP, where her husband is a partner, advised FTX in 2021.

The firm also represented parties that could be adverse to FTX and Bankman-Fried in other proceedings, the judge said, and while her husband had no involvement in these matters, which “were confidential and their substance is unknown to the Court,” she was recusing herself to avoid a possible conflict.

Reporting by Luc Cohen in New York; Writing by Tom Hals in Wilmington, Del.; Editing by Noeleen Walder, Matthew Lewis and Daniel Wallis

Our Standards: The Thomson Reuters Trust Principles.

Luc Cohen

Thomson Reuters

Reports on the New York federal courts. Previously worked as a correspondent in Venezuela and Argentina.

Tom Hals

Thomson Reuters

Award-winning reporter with more than two decades of experience in international news, focusing on high-stakes legal battles over everything from government policy to corporate dealmaking.

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Core Scientific files for bankruptcy as crypto winter bites

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Dec 21 (Reuters) – Core Scientific Inc (CORZ.O), one of the biggest publicly traded cryptocurrency mining companies in the United States, said on Wednesday it filed for Chapter 11 bankruptcy protection, the latest in a string of failures to hit the sector.

Austin, Texas-based Core Scientific attributed its bankruptcy to slumping bitcoin prices, rising energy costs for bitcoin mining and a $7 million unpaid debt from U.S. crypto lender Celsius Network, one of its biggest customers.

Core Scientific said in court filings that it had suffered a net loss of $434.8 million for the three months ending September 30, 2022, and had just $4 million in liquidity at the time of its bankruptcy filing.

The company engaged restructuring advisers in October and has been negotiating with creditors about a potential bankruptcy filing since that time.

More than a trillion dollars in value has been wiped out from the crypto sector this year with rising interest rates exacerbating worries of an economic downturn. The crash has eliminated key industry players such as crypto hedge fund Three Arrows Capital and Celsius.

The biggest blow came after major crypto exchange FTX filed for bankruptcy protection last month. Its swift fall has sparked tough regulatory scrutiny of how crypto firms hold funds and conduct business operations.

After rapid growth in 2020 and 2021, bitcoin – the most popular digital currency by far – is down more than 60% this year, pressuring the crypto mining sector.

Processing bitcoin transactions and “mining” new tokens is done by powerful computers, hooked up to a global network, that compete against others to solve complex mathematical puzzles.

Bitcoins are seen in this illustration picture taken September 27, 2017. REUTERS/Dado Ruvic

But the business has become less profitable as the price of bitcoin has slumped, while energy costs have soared.

Celsius, which filed for Chapter 11 bankruptcy protection in July, owns several bitcoin mining rigs hosted at Core Scientific’s facilities. Celsius’s bankruptcy has prevented Core Scientific from collecting on higher energy bills that the company is racking up at a rate of $900,000 per month, according to court filings.

Core Scientific said it would not liquidate, and intends to pursue a restructuring backed by creditors who hold over 50% of the company’s convertible notes.

Those creditors have agreed to provide up to $56 million in debtor-in-possession financing, and convertible noteholders would ultimately end up with 97% of Core Scientific’s equity shares if the restructuring is approved in court.

The company’s shares have lost roughly 98% of their value so far in 2022, shrinking its market cap to about $78 million.

The stock fell another 50% in trading on Wednesday. Shares of other crypto miners including Riot Blockchain (RIOT.O), Marathon Digital (MARA.O) and Hut 8 Mining Corp have all shed more than 80% this year.

In its bankruptcy petition, Core Scientific said it has $1 billion to $10 billion in assets and liabilities, and between 1,000 and 5,000 creditors.

Core Scientific went public in 2021 through a merger with a blank-check company in a deal that at the time valued the miner at $4.3 billion.

Core Scientific’s first bankruptcy court hearing has been set for Dec. 21 at 0915 CT (1515 GMT).

Reporting by Siddharth Jindal, Maria Ponnezhath, Akriti Sharma and Manya Saini in Bengaluru, and Dietrich Knauth in New York and Hannah Lang in Washington; editing by Uttaresh.V, Maju Samuel, Alexia Garamfalvi and Deepa Babington

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