US: Two of Bankman-Fried’s Colleagues Plead Guilty in FTX Fraud Scheme

Published: 23 December 2022

Sam Bankman-FriedTwo of Samuel Bankman-Fried’s former colleagues pleaded guilty to their role in the multi-billion dollar fraud scheme that led to the collapse of crypto exchange platform FTX. (Photo: Cointelegraph/Youtube, Wikimedia, License)

By Henry Pope

Two people linked to the now defunct crypto exchange platform FTX Trading Ltd. pleaded guilty to criminal charges for their role in a multi-year scheme that defrauded investors of billions of dollars, U.S. Attorney Damian Williams announced Wednesday.

The confession of Caroline Ellison, the former CEO of Alameda Research; and Gary Wang, the former CTO of FTX Trading Ltd. (FTX) comes a week after the head of the platform Samuel Bankman-Fried was charged for allegedly diverting FTX investments to Alameda, his own privately-held crypto trading firm, in addition to his alleged campaign to influence public policy in Washington via large political donations.

Wang’s role in the conspiracy stems from his creation of the software algorithms that diverted FTX assets to Alameda, according to a parallel complaint filed by the U.S. Securities and Exchange Commission (SEC) the same day as Williams’ announcement.

Ellison, meanwhile, used said assets for Alameda’s trading activity. Additionally, from 2019 to 2022, authorities say she manipulated the price of FTT, an FTX-issued crypto security token, by purchasing large quantities of it on the open market in order to artificially inflate up its price, at Bankman-Fried’s behest.

The resulting overinflation of the token’s price manipulated Alameda’s balance sheet and misled investors as to FTX’s risk exposure.

“Ms. Ellison and Mr. Wang admitted they were willing participants in schemes to defraud's customers and backers out of their money,” FBI Assistant Director Michael J. Driscoll said.

In May earlier this year, during a downturn in the crypto markets, Alameda lenders called in their loans worth billions of dollars, which the firm could not repay. This development came after it had already siphoned billions from FTX assets.

To meet its loan obligations, Bankman-Fried directed even more money from FTX to Alameda, an act that Ellison and Wang were aware of and complicit in, the SEC said. In essence, FTX investors were unknowingly on the hook for a “virtually unlimited line of credit” to Alameda.

Throughout the entire ordeal, Bankman-Fried lied to investors that Alameda “was just another customer with no special privileges,” according to U.S. authorities. But once the house of cards collapsed and the resulting scandal finally came to light, it was the investors left holding the bag, Gensler said.

Bankman-Fried was recently extradited from the Bahamas to the U.S., in an effort coordinated by the FBI and Nassau authorities. He has since been released with his bail set to US$250 million.

Ellison and Wang, meanwhile, are reportedly cooperating fully with investigators in order to avoid lengthy prison sentences that could see them behind bars for several decades.

There’s an old and wise saying that those who cooperate early and often with authorities are rewarded with the most favorable plea deals. It is from this that Williams issued a warning to anyone who has not yet been officially implicated in the multi-billion dollar fraud scheme.

“If you participated in misconduct at FTX or Alameda,” he said, “now is the time to get ahead of it. We are moving quickly and our patience is not eternal.”