Two former top executives of Sam Bankman-Fried’s crypto trading empire have pleaded guilty to federal criminal fraud and are cooperating in the prosecution of the disgraced crypto entrepreneur, the U.S. Attorney for the Southern District of New York said Wednesday night.
The two are Caroline Ellison, 28, who was the CEO of cryptocurrency hedge fund Alameda Research, and Gary Wang, 29, a founder of the crypto exchange FTX. They were key figures in Mr. Bankman-Fried’s vast business empire, an international network of investments and ventures that began with the founding of Alameda and FTX.
Two federal regulatory agencies, the Securities and Exchange Commission and the Commodity Futures Trading Commission, also filed civil fraud charges against Ms. Ellison and Mr. Wang on Wednesday, building on fraud charges they filed against Mr. Bankman-Fried last week.
The guilty verdicts and cooperation agreements are a major advance in the federal prosecution of Mr. Bankman-Fried, who is in US custody after agreeing to be extradited from the Bahamas to face trial in New York’s Southern District.
The combination of criminal and civil charges against the former top executives puts 30-year-old Bankman-Fried in an even more dangerous legal position. The federal government has charged him with orchestrating a sweeping, year-long fraud that culminated last month in FTX’s bankruptcy following the crypto equivalent of a bank run. Now two of his close advisers are working with the government in prosecuting that case.
Mr. Wang and Mrs. Ellison were not only close colleagues of Mr. Bankman-Fried. The three lived together in a luxurious penthouse in the Bahamas, where FTX was located, and Mr. Bankman-Fried and Mrs. Ellison were romantically involved at times.
In the charges brought against Mr. Bankman-Fried, prosecutors and regulators have accused him of diverting billions in client money for other uses, including buying real estate in the Bahamas, trading cryptocurrencies at Alameda, making campaign donations and invest in other crypto companies. Prosecutors allege that he defrauded clients, investors and lenders of his crypto trading company.
What you need to know about the collapse of FTX
What is FTX? FTX is a now-bankrupt company that used to be one of the world’s largest cryptocurrency exchanges. It enabled customers to trade digital currencies for other digital currencies or traditional money; it also had a native cryptocurrency known as FTT. Based in the Bahamas, the company built its business on risky trading options that are not legal in the United States.
The allegations revealed on Wednesday show prosecutors and regulators believe that Mr Bankman-Fried was far from alone in carrying out his scheme and worked with a close circle of colleagues who followed his directions and played a key role in carry out the fraud. The SEC said that Ms. Ellison had misused FTX clients’ deposits to fund Alameda’s trading activities and that Mr. Wang had created software that enabled that diversion of funds.
“Ellison and Wang were active participants in the scheme to defraud FTX’s investors and engaged in conduct critical to its success,” the SEC said in a statement.
The collapse of FTX and the prosecution of Mr. Bankman-Fried has been a major blow to the crypto industry, which has been reeling for months as the prices of digital assets such as Bitcoin and Ether have plummeted and a retinue of major companies application has been submitted. bankruptcy. FTX’s sudden implosion has alarmed customers of other crypto trading platforms, who are rushing to reassure investors that their funds are safe.
The confessions of Mrs. Ellison and Mr. Wang could push other former senior executives to cooperate with authorities in the case against Mr. Bankman-Fried, who is charged with fraud, money laundering and campaign finance.
In a videotaped statement on Wednesday evening, Damian Williams, the US attorney, said Mr. Wang and Ms. Ellison were charged “in connection with their role in the fraud that contributed to the collapse of FTX.”
Mr Williams also reiterated a point he made last week when his office filed criminal charges against Mr Bankman-Fried. “If you have participated in misconduct at FTX or Alameda, now is the time to get ahead of it,” he said. “We are moving fast and our patience is not eternal.”
Mr. Williams added that Mr. Bankman-Fried was in FBI custody and was being brought back to the United States from the Bahamas and would be brought before a judge as soon as possible. The crypto entrepreneur is expected to appear in Federal District Court as early as Thursday.
Ms. Ellison’s attorneys declined to comment. Ilan Graff, a lawyer for Mr Wang, said: “Gary has accepted responsibility for his actions and takes seriously his obligations as a cooperating witness.”
During a two-week media blitz prior to his arrest on December 12, Mr. Bankman-Fried that he had done nothing wrong and never intended to defraud anyone. He also claimed that he was not fully aware of what was happening at Alameda.
A spokesperson for Mr Bankman-Fried declined to comment.
Although the IOUs of Mrs. Ellison and Mr. Wang still appear to be sealed by court order, their plea agreements were released by prosecutors Wednesday night. Ms. Ellison pleaded guilty to seven counts: two counts of wire fraud and five conspiracy counts involving wire, securities and property fraud and money laundering. Mr. Wang pleaded guilty to telegram fraud and three conspiracies, involving fraud involving telegrams, securities and goods.
In the agreements, signed Monday, Ms. Ellison and Mr. Wang pledged to “fully cooperate” with the US law firm, the FBI and other law enforcement agencies, and to “truthfully and fully disclose all information on all matters.” they are interrogated.
The aftermath of FTX’s demise
The sudden collapse of the crypto exchange has stunned the industry.
In her complaint, the SEC said Ms. Ellison, under the direction of Mr. Bankman-Fried, manipulated the price of a digital currency that FTX created called FTT by buying large quantities to support the price. Alameda was one of the major companies trading FTT and had used the crypto token as collateral for loans it received from other major crypto companies to fund its trading.
Authorities have said that investors, lenders and customers were unaware of how closely linked FTX and Alameda were and that they essentially operated as one entity.
The Commodity Futures Trading Commission accused Ms. Ellison of aiding Mr. Bankman-Fried by making deceptive and misleading statements about the alleged separation between Alameda and FTX.
Mr. Wang helped further those close ties by creating systems that gave Alameda an unfair advantage over other clients when transacting on the FTX platform, the commission said.
Ms. Ellison met Mr. Bankman-Fried at the quantitative trading firm Jane Street, where she worked after graduating from Stanford University. Both were involved in effective altruism – a community that focuses on using data to maximize the long-term impact of charitable donations.
Mr Bankman-Fried left Jane Street and eventually founded Alameda in 2017. Ms Ellison joined him in 2018 and quickly became a member of his circle. She followed him to Hong Kong and took over as CEO of Alameda after Mr. Bankman-Fried co-founded FTX with Mr. Wang in 2019.
Mr. Wang was also part of the effective altruistic community. Before he met Mr. Bankman-Fried started working as a software engineer at Google, where he developed price aggregation systems for Google Flights. Since the founding of FTX, he has kept a low profile with the public, leading Mr. Bankman-Fried could become the face of the stock market.
But behind the scenes, Mr. Wang played a key role in FTX, as one of the executives responsible for writing the platform’s software code, according to the SEC.
As FTX collapsed, Ms. Ellison gathered a group of Alameda employees working out of the company’s Hong Kong office and confessed that the company had used customer deposits to make up a shortfall in its accounts, The New York Times reported. York Times earlier. She told them that she, Mr. Bankman-Fried, Mr. Wang and another executive, Nishad Singh, were all aware of the plan.
