February 9, 2023

Two former top executives of Sam Bankman-Fried’s cryptocurrency trading empire have pleaded guilty to federal criminal fraud charges, the U.S. Attorney for the Southern District of New York said on Wednesday night cooperation in the case of cryptocurrency entrepreneurs.

The two are Caroline Ellison, CEO of cryptocurrency trading company Alameda Research, and Gary Wang, founder of FTX cryptocurrency exchange. They are key lieutenants in Mr. Bankman-Fried’s sprawling business empire, which relies heavily on FTX and Alameda, which he founded and runs.

On Wednesday, the SEC also filed civil fraud charges against Ms. Ellison and Mr. Wang. Ms. Ellison, 28, misused FTX customer deposits to fund trading activities at Alameda, while Mr. Wang, 29, developed software that allowed the funds to be transferred, the SEC said. The SEC case builds on civil charges filed this month against Mr. Bankman-Fried, 30.

The plea and cooperation agreement is a major development in the criminal fraud case against Mr. Bankman-Fried, who was in US custody after agreeing to extradition from the Bahamas earlier on Wednesday.

A combination of criminal and civil charges against the former executive puts Mr. Bankman-Fried in an even more precarious legal position, with the federal government saying he oversaw a widespread, years-long fraud that transformed him from one of the most powerful The most powerful man in the U.S. crypto industry has become a criminal defendant who could face decades in prison.

U.S. federal prosecutors and regulators say Mr. Bankman-Fried perpetrated a fraudulent practice that misappropriated billions of dollars in client funds, including buying real estate in the Bahamas, trading cryptocurrencies in Alameda, and making campaign contributions As well as investing in other cryptocurrency companies. Prosecutors allege he defrauded clients, investors and lenders of his cryptocurrency trading firm before it collapsed into bankruptcy last month.

The allegations have also dealt a major blow to the crypto industry, which has struggled over the past year as the price of cryptocurrencies such as bitcoin plunged and companies filed for bankruptcy. The FTX debacle and allegations of fraud have rattled customers of other trading platforms, who had been confident their funds were safe and protected.

The guilty pleas by Ms. Ellison and Mr. Wang could prompt other former executives to cooperate with authorities in the case against Bankman-Fried, who is accused of fraud, money laundering and campaign finance .

U.S. Attorney Damian Williams said Mr Wang and Ms Ellison were charged “in connection with their role in the fraud that led to the collapse of FTX.”

Mr Williams also reiterated points he made last week when criminal charges against Mr Bankman-Fried were announced. “If you were involved in wrongdoing at FTX or Alameda, now is the time to take action,” Mr. Williams said. “We are moving quickly and our patience is not eternal.”

During the two weeks of media frenzy leading up to his December 12 arrest, Mr Bankman-Fried claimed he had done nothing wrong and had no intention of deceiving anyone. He also claimed he didn’t fully understand what happened in Alameda.

Mr. Williams also said in his statement that Mr. Bankman-Fried has been detained by the FBI and returned to the United States to appear in court as soon as possible. He is expected to be brought in federal district court in Manhattan as early as Thursday.

A lawyer for Ms. Ellison declined to comment. Mr. Wang’s attorney, Ilan Graff, said, “Gary has accepted responsibility for his actions and has taken his duties as a cooperating witness seriously.”

A spokesman for Mr. Bankman-Fried declined to comment.

In its complaint, the SEC said Ms. Ellison, at the direction of Mr. Bankman-Fried, manipulated the price of a digital currency created by FTX called FTT by purchasing large quantities of the cryptocurrency to prop up its price.

Alameda is one of the major players trading FTT and has used the crypto token as collateral for loans it has taken from other large crypto firms to fund its transactions.

Sanjay Wadhwa, Deputy Director of the SEC’s Enforcement Division, said Mr. Bankman-Fried, Ms. Ellison and Mr. Wang “actively participated in a scheme to conceal material information from FTX investors, including through the efforts of Mr. strongly support the value of FTT.”

Ms Ellison is a key figure in Mr Bankman-Fried’s business empire. From time to time, she and Mr. Bankman-Fried fall in love, and they live together in a five-bedroom penthouse in the Bahamas, where FTX is headquartered.

Ms. Ellison met Mr. Bankman-Fried at quantitative trading firm Jane Street, where she worked after graduating from Stanford University. Both are involved in Effective Altruism — a community focused on using data to maximize the long-term impact of charitable giving.

Mr. Bankman-Fried left Jane Street and eventually founded Alameda in 2017. Ms Ellison joined him in 2018 and quickly became part of his tight inner circle. She followed him to Hong Kong and took over as CEO of Alameda after Mr. Bankman-Fried co-founded FTX with Mr. Wang.

Even as she emerges as a powerful figure in the nascent crypto industry. Ms. Ellison was never a true believer in the technology. “I do think a lot of crypto projects don’t have much real value,” she said. Say On the official FTX podcast in early 2021. She explained in another episode that she got into crypto because she hoped to make a lot of money to donate as part of her commitment to effective altruism.

As FTX collapsed, Ellison rallied a group of Alameda employees who worked in the company’s Hong Kong office and acknowledged that the company had used deposits from customers to fill gaps in accounts, according to a person familiar with the matter. matter.

Mr. Wang, a graduate of the Massachusetts Institute of Technology, was a software engineer at Google and one of Mr. Bankman-Fried’s closest confidants at FTX. The two lived together in a luxury apartment complex in the Bahamas.

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