Two top executives plead guilty to fraud in FTX case

Top FTX executives close to Sam Bankman-Fried, Caroline Ellison and Zixiao “Gary” Wang, have pleaded guilty to fraud and are cooperating with prosecutors. The pair were convicted “in connection with their roles in the fraud that contributed to FTX’s collapse,” said Damian Williams, the US Attorney for the Southern District of New York in a press conference.

Ellison, the former CEO of FTX sister company Alameda Research and ex-girlfriend of Bankman-Fried, pleaded guilty to seven counts and faces up to 110 years in prison. Former FTX co-founder Wang pleaded guilty to four counts and faces 50 years. Depending on the level of cooperation, however, they could receive lighter sentences. The pair also face civil fraud charges filed by the Securities and Exchange Commission (SEC) and Commodity Future Trading Commission (CFTC). Both were released on $250,000 bonds.

The announcement was made as Bankman-Fried was being extradited from the Bahamas to New York, and add to his mounting legal woes. Wang’s lawyer Ilan Graff said that his client has “accepted responsibility for his actions and takes seriously his obligations as a cooperating witness,” according to The Washington Post. 

Despite their cooperation, the SEC didn’t mince words in laying out its case against Ellison and Wang. “Mr. Bankman-Fried, Ms. Ellison, and Mr. Wang were active participants in a scheme to conceal material information from FTX investors,” said SEC deputy director of enforcement, Sanjay Wadhwa. “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.”

Bankman-Fried, meanwhile, is accused of a long list of misdeeds by multiple agencies, including the SEC, Department of Justice and CFTC. Those include defrauding FTX investors and customers of more than $1.9 billion, multiple counts of wire fraud, conspiracy to defraud investors by sharing misleading information and “surreptitiously” siphoning customer funds. The CFTC also alleges that Bankman-Fried and his cohorts “took hundreds of millions of dollars in poorly-documented ‘loans’ from Alameda,” which they then used to purchase real estate and make political donations.

FTX founder Sam Bankman-Fried agrees to extradition to the US

When the Bahamas Attorney General’s office announced that it had arrested former FTX CEO Sam Bankman-Fried, it noted that the former FTX CEO was likely to be extradited at the request of the United States. Just over a week later, that prediction has co…

SEC charges FTX co-founder Sam Bankman-Fried with ‘defrauding investors’

Following his arrest in the Bahamas, the US Securities and Exchange Commission (SEC) has charged FTX co-founder Sam Bankman-Fried with “defrauding investors,” it announced. It alleges that Bankman-Fried “concealed his diversion of FTX customers’ funds to [the] crypto trading firm Alameda Research while raising more than $1.8 billion from investors.” 

“We allege that Sam Bankman-Fried built a house of cards on a foundation of deception while telling investors that it was one of the safest buildings in crypto,” said SEC Chair Gary Gensler. “The alleged fraud committed by Mr. Bankman-Fried is a clarion call to crypto platforms that they need to come into compliance with our laws.”

The SEC alleges that since at least May 2019, FTX raised $1.8 billion from equity investors, including $1.1 billion from 90 US investors alone. Bankman-Fried promoted the exchange as a safe trading platform with “sophisticated, automated measures to protect customer assets,” it said. “In reality, though, Bankman-Fried orchestrated a fraud to conceal the diversion of customer funds to his privately-held crypto hedge fund, Alameda Research.”

That fund was given special treatment, “including an unlimited ‘line of credit’ funded by the platform’s customers and exempting Alameda from certain key FTX risk mitigation measures,” the commissioner added. And finally, customers were exposed to undisclosed risk from FTX’s exposure to Alameda holdings of “overvalued, illiquid assets such as FTX-affiliated tokens.” It further alleges that Bankman-Fried used commingled FTX customer funds to make “undisclosed venture investments, lavish real estate purchases and large political donations.” 

Bankman-Fried was set to be testifying today in Congress, but that isn’t happening now. In a draft transcript of his testimony seen by Forbes, he would have led by saying “I fucked up.” Later in the transcript, Bankman-Fried claims Alameda’s position on the platform was twice as large as displayed on FTX’s dashboards due to “a historical accounting quirk,” as opposed to any malfeasance. He also planned to say that FTX’s US business is fully solvent and could pay back customers immediately. Among other statements, he notes that he was pressured into filing for Chapter 11, and that ultimately the Chapter 11 documents were filed against his wishes.

The SEC is seeking injunctions including barring Bankman-Fried from future securities dealings, seizing alleged ill-gotten gains, a civil penalty and an officer and director bar. “FTX operated behind a veneer of legitimacy,” said SEC enforcement director Surbir S. Grewal. “But as we allege in our complaint, that veneer wasn’t just thin, it was fraudulent.”

At the same time, the US Attorney’s Office of the Southern District of New York and the Commodity Futures Trading Commission (CFTC) also announced charges against Bankman-Fried in parallel actions. The unsealed indictment in United States of America v. Samuel Bankman-Fried has eight counts: Conspiracy to commit wire fraud on customers; wire fraud on customers; conspiracy to commit wire fraud on lenders; wire fraud on lenders; conspiracy to commit commodities fraud; conspiracy to commit securities fraud; conspiracy to commit money laundering and conspiracy to defraud the United States and violate the campaign finance laws. 

The CFTC’s suit names Bankman-Fried alongside FTX and Alameda Research. Alongside similar allegations to the criminal and SEC cases, the CFTC claims that Bankman-Fried and other FTX executives took “hundreds of millions of dollars in poorly-documented ‘loans’ from Alameda that they used to purchase luxury real estate and property, make political donations, and for other unauthorized uses.”

Update 12/13 11:30AM ET: This article was updated to include details on the criminal charges and CFTC suits.