Caroline Ellison, ex-CEO of Alameda, and Gary Wang, Co-founder of FTX Plead Guilty

Caroline Ellison, ex-CEO of Alameda, and Gary Wang, Co-founder of FTX Plead Guilty

On the very same day FTX co-founder Sam Bankman-Fried was extradited to the US, his partners Caroline Ellison, ex-CEO of sister company Alameda Research, and Gary Wang, co-founder and CTO of the collapsed crypto exchange, have pleaded guilty to federal charges against them.

Caroline Ellison, former chief executive of Alameda Research, and Gary Wang, co-founder and former chief technology officer of FTX, have pleaded guilty for their roles in contributing to the collapse of the once world’s second largest cryptocurrency exchange.

If convicted for the charges pressed against them, which includes wire fraud, securities fraud and commodities fraud in exchange for leniency, the pair is looking at decades-long prison sentences. According to a statement by Damian Williams, the U.S attorney for the Southern District of New York, both Ellison and Wang have agreed to cooperate with federal prosecutors to continue their investigation into FTX and its former CEO and co-founder, Sam Bankman-Fried.

The news came just as Bankman-Fried was extradited to the United States on Wednesday to face his charges. According to Judge Williams, Bankman-Fried, who is now under FBI custody, will be transported directly to the Southern District of New York where he will appear in court before a judge as soon as possible.

The disgraced former CEO was arrested at his home in the Bahamas last Sunday. The arrest came after the U.S Department of Justice filed a criminal indictment against Bankman-Fried and his partners for misusing and mismanaging about $10 billion worth of customer funds, and defrauding investors, clients and lenders before the eventual collapse of his companies FTX and Alameda Research – a crypto hedge fund run by Caroline Ellison. The U.S Securities and Exchanges Commission (SEC) filed eight counts of wire fraud, securities fraud and money laundering against Bankman-Fried. The FTX co-founder could face life in prison if all complaints against him are proved in court.

In a parallel conviction, the SEC has charged Caroline Ellison and Gary Wang for their roles in a multi-year scheme to defraud equity investors in FTX. According to the financial watchdog’s complaint, between 2019 and 2022, Ellison, at the direction of Bankman-Fried, manipulated the price of FTT – a security token issued by FTX, by purchasing large quantities of the asset on the open market through Alameda Research – a company founded by Wang and Bankman-Fried, to prop up its price. FTT served as collateral for undisclosed loans given by FTX of its customers’ assets to the hedge fund. By manipulating the price of FTT, Bankman-Fried and Ellison inflated valuation of Alameda’s FTT holdings, in turn causing the value of collateral on the market maker’s balance sheet to be overstated, which misled investors about FTX’s risk exposure.

Caroline Ellison, ex-CEO of Alameda, and Gary Wang, Co-founder of FTX Plead Guilty

The SEC also alleged that between May 2019 and November 2022, Bankman-Fried raised billions from investors by falsely marketing FTX as a “safe crypto asset trading platform that follows sophisticated risk mitigation measures” to protect customer funds. SBF and Wang told investors that Alameda was just another customer of the company with no special privileges; meanwhile, both executives diverted user funds to the crypto hedge fund and market maker run by Ellison.

Wang and Ellisson were active participants in the scheme to deceive FTX investors despite knowing that it was false and misleading. Yet they continued to be engaged in activities that were integral to the platform’s success. The complaint alleges that Wang was responsible for creating the software code that allowed Alameda to divert customer assets from the crypto exchange. Even when it became apparent that both companies will not be able to reimburse customers if their funds are lost, Bankman-Fried, with the knowledge of Ellison and Wang, continued to direct hundreds of millions of dollars more in FTX funds to Alameda.

“As part of their deception, we allege that Caroline Ellison and Sam Bankman-Fried schemed to manipulate the price of FTT, an exchange crypto security token that was integral to FTX, to prop-up the value of their house of cards. We further allege that Ms. Ellison and Mr. Wang played an active role in a scheme to misuse FTX customer assets to prop up Alameda and to post collateral for margin trading. When FTT and the rest of the house of cards collapsed, Mr. Bankman-Fried, Ms. Ellison, and Mr. Wang left investors holding the bag,” said SEC Chairman Gary Gensler.

Gensler reminded authorities that until crypto companies comply with securities laws, the risk for investors will persist. He also added that the financial watchdog is working on bringing the sector under its regulations. The investigation into FTX’s implosion is being conducted by the SEC, the FBI, the Commodity Futures Trading Commission (CFTC) and the U.S Attorney’s Office for the Southern District of New York.

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