Two former lieutenants in fallen kingpin Sam Bankman-Fried’s crypto empire pleaded guilty to criminal charges and are cooperating with federal prosecutors probing the fiery collapse of FTX, officials said late Wednesday.
Caroline Ellison, the former chief executive of Alameda Research and Bankman-Fried’s sometime lover, and Gary Wang, a co-founder of the $32-billion crypto exchange, were charged “in connection with their roles in the frauds that contributed to FTX’s collapse,” U.S. Attorney for the Southern District of New York Damian Williams said in a brief video address.
Ellison, 28, pleaded guilty to seven counts, including wire fraud and conspiracy to commit securities fraud, according to a plea agreement obtained by The Wall Street Journal. The seven counts carry a maximum sentence of 110 years in prison
Wang, 29, pleaded guilty to four counts: wire fraud, conspiracy to commit wire fraud, conspiracy to commit commodities fraud, and conspiracy to commit securities fraud. He faces up to five decades behind bars.
An attorney for Ellison declined to comment on the matter to the newspaper. In a statement, Wang’s lawyer, Ilan Graff, said, “Gary has accepted responsibility for his actions and takes seriously his obligations as a cooperating witness.”
Williams emphasized in his video statement that the pair were unlikely to be the last people targeted in the ongoing investigation.
“Let me reiterate a call that I made last week: If you participated in misconduct at FTX or Alameda, now is the time to get ahead of it,” he said. “We are moving quickly, and our patience is not eternal.”
Ellison and Wang were also charged in a civil suit by the U.S. Securities and Exchange Commission “for their roles in a multiyear scheme” to defraud FTX’s investors, the agency said in a separate Wednesday statement.
Calling the pair “active participants” in the plot to deceive FTX’s investors, the SEC laid out the alleged plot: Wang would illegally divert FTX customer assets to Alameda, which Ellison would use to fuel the firm’s trading activity. “And Bankman-Fried used those customer funds to make undisclosed venture investments, lavish real estate purchases, and large political donations,” the agency said in its amended complaint.
Wang and Bankman-Fried, “with Ellison’s knowledge and consent,” also afforded Alameda “significant special treatment on the FTX platform,” essentially giving the firm “a virtually unlimited ‘line of credit’ funded by the platform’s customers,” the complaint explained.
Ellison was also responsible for artificially inflating the value of FTT, the self-issued tokens that FTX handed out for free to Alameda, by snatching them up on various platforms, according to the SEC. This, in turn, would make the FTT used as collateral against Alameda’s loans more valuable, allowing her to borrow billions more, investigators wrote in the complaint.
“When FTX and the rest of the house of cards collapsed, Mr. Bankman-Fried, Ms. Ellison, and Mr. Wang left investors holding the bag,” SEC Chair Gary Gensler said.
Despite Bankman-Fried’s insistence that he was “shocked” by the collapse of what he’d seen as “a thriving business,” and that he’d been unaware of the extent of the illegal activity going on at Alameda, federal officials have alleged that he and his inner circle knew exactly what they were doing.
In a complaint made public earlier this month, the Commodity Futures Trading Commission said Bankman-Fried and his top executives across both Alameda and FTX had had “widespread access to each other’s systems and accounts.” In addition to allegedly co-mingling funds, the nominally separate teams also shared “key personnel, technology and hardware, intellectual property, and other resources,” the CFTC said.
A major step forward in the case against Bankman-Fried, Ellison and Wang’s guilty pleas come amid news that the disgraced mogul had been transferred to U.S. custody after being extradited from the Bahamas, where he was arrested earlier this month.
After being flown to New York—in the company of federal agents—the 30-year-old is expected make an initial court appearance in Manhattan as soon as Thursday.