Federal charges have been filed against Caroline Ellison, the former CEO of Alameda Research, and Gary Wang, the co-founder of FTX, for their roles in the alleged fraud that contributed to the crypto currency exchange's collapse, according to prosecutors.
The Southern District of New York announced Wednesday night that both Ellison and Wang have already pleaded guilty to the charges, and both are cooperating with prosecutors, U.S. Attorney Damian Williams said. Ellison, 28, and Wang, 29, pleaded guilty to charges including wire fraud, securities fraud and commodities fraud.
Ellison and Wang signed plea agreements on Dec. 19, partially in exchange for a promise that prosecutors would recommend a reduction in their sentences if they cooperate fully in the investigation. Without such a deal, Ellison, who also faces a money laundering conspiracy charge, could face up to 110 years in prison. Wang could get up to 50 years.
Both were released on $250,000 bail after their secret court appearances with travel restricted to the continental United States.
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"Gary has accepted responsibility for his actions and takes seriously his obligations as a cooperating witness," said Wang's lawyer, Ilan Graff.
A lawyer for Ellison did not immediately return messages seeking comment.
Williams reiterated that they are also looking for anyone who participated in the misconduct at FTX and Alameda to come forward, saying "now is the time to get ahead of it. We are moving quickly, and our patience is not eternal."
In a parallel civil complaint, the Securities and Exchange Commission also charged Wang and Ellison for their "multiyear scheme to defraud equity investors" in the crypto trading platform.
The SEC complaint states that from 2019-2022, Sam Bankman-Fried directed Ellison to prop up the price of FTX's crypto security token by buying it en masse. That's because the the token, FTT, was being used as collateral for loans of FTX assets to Alameda, the crypto hedge fund run by Wang and Bankman-Fried, which Ellison ran. The SEC claimed that manipulating the price of FTT also falsely inflated the worth of Alameda and misled FTX investors.
"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," said SEC Chair Gary Gensler. "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."
During the same time period as the other alleged fraud, Bankman-Fried told investors that Alameda was just a customer like any other, with no special connections or privileges. Meanwhile, he and Wang had been improperly diverting customer assets to the crypto hedge fund, and knowingly made false statements about the companies' relationship.
The surprise guilty pleas were announced as Bankman-Fried was in FBI custody and was being extradited from the Bahamas by U.S. law enforcement to answer to charges tied to his role in FTX's failure. He was flown Wednesday night to New York's Westchester County Airport, and is expected to appear in a federal court in New York City on Thursday.
Before Bankman-Fried was in the air, U.S. prosecutors hadn't publicly revealed that Ellison and Wang were facing potential criminal charges or that they had pledged to work with investigators. It was unclear whether Bankman-Fried, who has apologized for FTX's collapse but denied defrauding anyone, was also in the dark.
Bahamas's attorney general's office said that Bankman-Fried had waived his right to challenge the extradition.
Reporters on the scene witnessed Bankman-Fried leaving a Magistrate Court in Nassau in a dark SUV earlier Wednesday. The vehicle was later seen arriving at a private airfield by Nassau's airport, from which he is expected to be flown to the United States. He is due to land in New York and will likely appear in front of a U.S. judge on Thursday.
“The Bahamas has determined that the provisional arrest, and subsequent written consent by (Bankman-Fried) to be extradited without formal extradition proceedings satisfies the requirements of the (extradition treaty between the U.S. and the Bahamas) and our nation’s Extradition Act,” said Bahamian Attorney General Ryan Pinder, in a statement.
Bahamian authorities arrested Bankman-Fried last week at the request of the U.S. government. U.S. prosecutors allege he played a central role in the rapid collapse of FTX and hid its problems from the public and investors. The Securities and Exchange Commission said Bankman-Fried illegally used investors’ money to buy real estate on behalf of himself and his family.
The 30-year-old could potentially spend the rest of his life in jail.
Bankman-Fried was denied bail Friday after a Bahamian judge ruled that he posed a flight risk. The founder and former CEO of FTX, once worth tens of billions of dollars on paper, had been held in the Bahamas' Fox Hill prison, which has been has been cited by human rights activists as having poor sanitation and as being infested with rats and insects.
Once he’s back in the U.S., Bankman-Fried’s attorney will be able to request that he be released on bail.
Bankman-Fried was one of the world’s wealthiest people on paper, with an estimated net worth of $32 billion. He was a prominent personality in Washington, donating millions of dollars toward mostly left-leaning political causes and Democratic political campaigns. FTX grew to become the second-largest cryptocurrency exchange in the world.
He has said that he did not “knowingly” misuse customers’ funds, and said he believes his millions of angry customers will eventually be made whole.
At a congressional hearing last week, the new FTX CEO John Ray III, who is tasked with taking the company through bankruptcy, bluntly disputed those assertions: “We will never get all these assets back,” Ray said.
