Sam Bankman-Fried’s ex-friends have pleaded guilty and are collaborating on an FTX scam case

Carolyn Ellison and Zixiao “Gary” Wang, executives in Sam Bankman-Fried’s collapsing crypto empire, have pleaded guilty to federal charges and are cooperating with prosecutors. was the news announced late Wednesday By Damien Williams, US Attorney for the Southern District of New York.

Williams did not specify what charges the two pleaded guilty to, but said the guilty plea was related to their roles as insiders at FTX and its sister company, Alameda Research. Wang was a co-founder of the cryptocurrency exchange FTX and owns 10% of Alameda Research. (Bunkman Fried owns the remaining 90 percent.) Ellison served as CEO of Bankman Fried’s trading company, Alameda Research.

Ellison pleaded guilty to seven counts, according to Washington Post. facing up to 110 years in prison, WaPo He says. Wang pleaded guilty to four counts and faces up to 50 years in prison.

Bankman-Fried and Wang allegedly gave Alameda and Ellison “carte blanche” to use funds deposited by FTX clients

At its peak, FTX moved $20 billion per day in trades, according to the CFTC. Bankman-Fried and a select group of insiders, including Ellison and Wang, were allegedly the only people who knew FTX was involved in the fraud. The cases against Bankman-Fried are both criminal and civil and have been brought by SDNY, the CFTC, and the SEC. FTX clients’ money was allegedly used for CEO loans, risky trading by Alameda Research, political donations, and lavish spending on everything from beach homes to private flights.

The US Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) have already filed updated civil lawsuits, including details about Wang and Ellison’s roles. “Wang, with Ellison’s knowledge and consent, exempted Alameda from risk mitigation measures” used by FTX, providing Alameda Research with a “nearly unlimited credit line,” according to the updated SEC complaint.

The SEC complaint explains how “Bankman-Fried and Wang have thereby given Alameda and Ellison carte blanche to use FTX clients’ assets for Alameda’s trading operations and for any other purposes that Bankman-Fried and Ellison see fit.”

According to the SEC’s lawsuit, Ellison, on Bankman Fried’s orders, borrowed billions of dollars from lenders. The SEC wrote that these loans were backed “in large part” by the FTT token, which was issued by FTX and given to Alameda for free. Ellison’s mission was to buy FTT tokens on various platforms in order to increase the price, thus making the FTT that was collateral against Alameda loans more valuable. This, in turn, made it possible for Alameda to borrow more.

“As part of their deception, we allege that Caroline Ellison and Sam Bankman-Fred planned to manipulate the price of FTT, an exchange crypto security token that was embedded in FTX, to support the value of their house of cards,” the SEC said. President Gary Gensler in a statement.

The scam came to light after a massive CoinDesk article reported that Alameda Research’s balance sheet consisted mostly of FTT tokens, which set off a chain of events that ended in FTX’s bankruptcy. During that time, Binance CEO Changpeng Zhao said he would sell his FTT holdings; Ellison tweeted that Alameda would buy at $22 a token.

In an effort to stave off the collapse of the FTT token price, Ellison and Bankman-Fried began divesting Alameda Research — freeing up cash for buybacks, according to the CFTC’s complaint. That wasn’t enough. During that period, Bankman Fried, Ellison, and a third unnamed FTX executive expressed their surprise that the bitcoin price hadn’t fallen further.

Ellison also acknowledged that her November 6 tweet to the CEO of Binance offering to buy his FTT holdings at $22 per token was a misleading tweet.

As panicked FTX clients began withdrawing their funds from the exchange, Ellison and Bankman Fried directed the Alameda researchers “in general to do anything possible to quickly obtain billions of dollars in capital to send to FTX,” according to the CFTC’s complaint. That wasn’t enough.

In a meeting on November 9, Ellison told staff the truth about Alameda embezzling FTX clients’ funds, the CFTC says.

In response to a question to the staff, Ellison also admitted that she November 6 Tweet To the Binance CEO who offered to buy his FTT holdings at $22 per token was “kind of misleading to tweet” and expressed remorse, according to the CFTC complaint. Most of the employees quit after that.

In filing for bankruptcy, FTX’s new CEO, John J. Ray, the company was worse than Enron – and he knew that, as he was accused of cleaning up after fraud there.

In May, when the price of cryptocurrency began to crash, lenders wanted their money back. To keep them happy, Bankman-Fried directed that customers’ deposits be sent to lenders. Ellison used that money to pay off Alameda’s debts.

“Even in November 2022, faced with multi-billion dollar customer withdrawal requests that FTX could not meet, Bankman-Fried and Ellison, knowing Wang, misled investors from whom they needed money to plug a multibillion-dollar gap,” the SEC wrote in the suit. .

But clients’ money was also transferred From the beginning, the Securities and Exchange Commission wrote in the suit. The CFTC lawsuit echoed this.

Alameda obtained FTX clients’ funds in two ways: first, via a “line of credit” but also by directing clients to deposit fiat currency into accounts controlled by Alameda. “As a result, there was no meaningful distinction between FTX clients’ funds and Alameda’s private funds,” the SEC lawsuit says. Thus Bankman gave Fried and Wang Alameda and Ellison white card To use FTX clients’ assets for Alameda trading operations and for any other purposes Bankman-Fried and Ellison see fit. “

Customers were not authorized for these uses, the CFTC lawsuit shows. (They mirror the SEC lawsuit’s allegations about how Alameda improperly used client funds.) In fact, FTX’s terms of service expressly prohibit this sort of thing, the CFTC lawsuit says. This means that the executives were Conscious that it was important to keep client assets safe and separate from other funds – important for determining intent, and critical for proving fraudulent charges.

This made Alameda Bankman Fried a “personal piggy bank” for buying luxury condominiums, supporting political campaigns, and making private investments, among other uses.

Earlier on Wednesday, the Bahamas delivered Sam Bankman Fried and sent him on his way back to the United States. Williams confirmed that Bankman-Fried is now in FBI custody, and said he will be flown directly to New York to appear before a judge “as soon as possible.”

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