FTX CTO and Alameda Research CEO admit fraud, pair 'cooperating' with Feds
Samuel Bankman-Fried in FBI custody to face court 'as soon as possible'
Two members of Samuel Bankman-Fried's inner circle have pleaded guilty to defrauding equity investors in the moribund FTX cryptocurrency trading platform.
Yesterday the US Securities and Exchange Commission announced that it was charging Gary Wang, former CTO and co-founder of FTX, and Caroline Ellison, former CEO of sister company Alameda Research, with fraud.
This was followed by a statement from US Attorney for the Southern District of New York Damian Williams that said Ellison and Wang had admitted to their roles in the frauds that contributed to the collapse of FTX. He added that they are "both cooperating" with the investigation.
Williams also said: "Samuel Bankman-Fried is now in FBI custody and is on his way back to the United States. He will be transported directly to the Southern District of New York and he will appear in court before a judge in this district as soon as possible."
The co-founder and CEO of FTX had gone to ground at his luxury private apartment complex in the exclusive Albany community in the Bahamas as his world came crashing down around him. He was arrested by Bahamian police on Monday last week and an extradition request by Uncle Sam followed swiftly.
"Many individuals in the Bahamas and in the United States contributed to the swiftness of the defendant's return and I want to thank the Bahamas for its outstanding assistance and excellent coordination with us," Williams added.
"I also want to thank our partners at the United States embassy in the Bahamas and the Justice Department's Office of International Affairs. And finally I want to thank the FBI for moving mountains to get this done. This was a true team effort."
As for Wang and Ellison, the SEC contends that between 2019 and 2022, "Ellison, at the direction of Bankman-Fried, furthered the scheme by manipulating the price of FTT, an FTX-issued exchange crypto security token, by purchasing large quantities on the open market to prop up its price. FTT served as collateral for undisclosed loans by FTX of its customers' assets to Alameda, a crypto hedge fund owned by Wang and Bankman-Fried and run by Ellison. The complaint alleges that, by manipulating the price of FTT, Bankman-Fried and Ellison caused the valuation of Alameda's FTT holdings to be inflated, which in turn caused the value of collateral on Alameda's balance sheet to be overstated, and misled investors about FTX's risk exposure."
The complaint also alleges that "from at least May 2019 until November 2022, Bankman-Fried raised billions of dollars from investors by falsely touting FTX as a safe crypto asset trading platform with sophisticated risk mitigation measures to protect customer assets and by telling investors that Alameda was just another customer with no special privileges; meanwhile, Bankman-Fried and Wang improperly diverted FTX customer assets to Alameda. The complaint alleges that Ellison and Wang knew or should have known that such statements were false and misleading."
Ellison and Wang are also accused of being "active participants in the scheme to deceive FTX's investors and engaged in conduct that was critical to its success. The complaint alleges that Wang created FTX's software code that allowed Alameda to divert FTX customer funds, and Ellison used misappropriated FTX customer funds for Alameda's trading activity. The complaint further alleges that, even as it became clear that Alameda and FTX could not make customers whole, Bankman-Fried, with the knowledge of Ellison and Wang, directed hundreds of millions of dollars more in FTX customer funds to Alameda."
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SEC chair Gary Gensler said: "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. Until crypto platforms comply with time-tested securities laws, risks to investors will persist. It remains a priority of the SEC to use all of our available tools to bring the industry into compliance."
Sanjay Wadhwa, deputy director of the SEC's Division of Enforcement, added: "As alleged, Mr Bankman-Fried, Ms Ellison, and Mr Wang were active participants in a scheme to conceal material information from FTX investors, including through the efforts of Mr Bankman-Fried and Ms Ellison to artificially prop up the value of FTT, which served as collateral for undisclosed loans that Alameda took out from FTX pursuant to its undisclosed, and virtually unlimited, line of credit.
"By surreptitiously siphoning FTX's customer funds onto the books of Alameda, defendants hid the very real risks that FTX's investors and customers faced."
SBF himself faces an eight-count criminal indictment [PDF] for conspiracy to commit wire fraud and securities fraud; committing securities fraud, wire fraud, and money laundering; and conspiracy to violate campaign finance rules.
The fluffy-haired 30-year-old former billionaire had a peculiar way of addressing the collapse of crypto's once most trusted exchange, participating in various Q&A sessions on Twitter. Some of these car-crash grillings have been saved for posterity by investigative journalist YouTuber Coffeezilla.
Just in April, the FTX-Alameda crew had hosted dignitaries such as Tony Blair and Bill Clinton at the Crypto Bahamas invitation-only conference. The execs' lifestyle was reportedly decadent.
"Nothing like regular amphetamine use to make you appreciate how dumb a lot of normal, non-medicated human experience is," Ellison posted on Twitter earlier this year. ®