A co-founder of the cryptocurrency exchange FTX and the former CEO of the hedge fund Alameda Research, two of Sam Bankman-top Fried’s business partners, have pleaded guilty to fraud, a federal prosecutor in New York announced Wednesday.
The US Attorney for the Southern District of New York said in a video statement that former Alameda CEO Caroline Ellison and FTX co-founder Gary Wang are cooperating with prosecutors.
Ellison and Wang were charged “in connection with their roles in the frauds that contributed to FTX’s collapse,” according to US Attorney Damian Williams.
Ellison faces seven criminal counts, including wire fraud, conspiracy to commit securities fraud, and money laundering, according to a plea agreement. Wang’s plea agreement lists four charges, including wire fraud and conspiracy counts.
Wang’s attorney, Ilan Graff, said in an email Wednesday, “Gary has accepted responsibility for his actions and takes seriously his obligations as a cooperating witness.”
Ellison’s lawyers did not immediately respond to a request for comment.
Civil fraud charges
On Wednesday, the Securities and Exchange Commission announced civil fraud charges against Ellison and Wang “for their roles in a multiyear scheme to defraud equity investors in FTX.”
They are also facing fraud charges from the Commodity Futures Trading Commission.
According to the SEC complaint, Wang “created FTX’s software code that allowed Alameda to divert FTX customer funds,” and Ellison used those funds for Alameda’s trading.
It also claims that Ellison and Wang collaborated with Bankman-Fried to transfer hundreds of millions of dollars in FTX customer funds to Alameda after realising the companies didn’t have enough assets to repay customers.
The SEC claimed in its complaint that since FTX’s inception in May 2019, some customer funds have been transferred directly to Alameda accounts.
“Billions of dollars of FTX customer funds were so deposited into Alameda-controlled bank accounts,” according to the complaint.
The SEC stated that it had reached settlements with Wang and Ellison, which are subject to court approval.
Failure of FTX
The barrage of criminal and civil charges levelled against the two top executives has revealed new details about FTX’s demise, including how customer assets were freely transferred from the crypto platform to Alameda, the privately held hedge fund Bankman-Fried co-founded.
Bankman-Fried, 30, a co-founder and former CEO of FTX, is accused of stealing billions of dollars from the massive cryptocurrency exchange that went bankrupt last month.
Prosecutors claim it was a multi-year scheme that involved funnelling money into Bankman-private Fried’s hedge fund.
