Sam Bankman-Fried’s close associates are cooperating with US authorities after reaching plea agreements

The case against FTX’s disgraced founder is getting stronger, as two of his key aides have reached plea agreements with US authorities.

As Sam Bankman-Fried, widely known as SBF, flies from the Bahamas to the US to face his day in court, Zixiao (Gary) Wang, the former chief technology officer of FTX, and Caroline Ellison, the former CEO of Alameda Research, are being probed by not one, not two, but three federal authorities.

US Attorney Damian Williams announced yesterday (Dec. 21) that Wang and Ellison pleaded guilty to the fraud charges brought forth by the US Attorney’s Office for the Southern District of New York, the FBI, and the Commodity Futures Trading Commission. They are “both cooperating” with the investigation, Williams said.

The same day, the Securities and Exchange Commission (SEC) charged the two executives “for their roles in a multiyear scheme to defraud equity investors in FTX,” it said in a press release. “Investigations into other securities law violations and into other entities and persons relating to the alleged misconduct are ongoing.” The two accused are “cooperating with the SEC’s ongoing investigation.”

The Commodity Futures Trading Commission (CFTC), which is vying to be the main overseer of crypto fraud versus the SEC, amended its Dec. 13 fraud complaint against SBF to bring fraud charges against these two executives, it said yesterday (Dec. 21). CFTC also said Wang and Ellison are accepting liability and participating in the probe.

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How did the alleged FTX fraud scheme work?

Authorities allege that in a period starting from May 2019 at the latest 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.

But there was little truth to it: FTT, an FTX-issued exchange crypto security token, was being used as collateral for undisclosed loans by FTX of its customers’ assets to Alameda Research, a crypto hedge fund owned by Wang and Bankman-Fried and run by Ellison. SBF and his aides were allegedly manipulating the price of FTT and surreptitiously siphoning it to distort Alameda’s books the whole time.

Specifically, Wang tweaked FTX’s software code that allowed Alameda to divert FTX customer funds with quicker execution times and exemption from the platform’s distinctive auto-liquidation risk management process, among other shady practices.

Meanwhile, Ellison used misappropriated FTX customer funds for Alameda’s trading activity, and made public statements in her capacity as Alameda’s CEO, highlighting supposed separation between the operations of Alameda and FTX.

The two “knew or should have known that such statements were false and misleading,” the SEC said.

The terms of Wang and Ellison’s plea agreements with the Department of Justice

Wang’s plea agreement charges him with engaging in conspiracy to commit wire fraud against customers of FTX; committing wire fraud on customers of FTX, and aiding and abetting the same; conspiracy to commit commodities fraud; and conspiracy to commit securities fraud.

Total maximum sentence: 50 years

According to Ellison’s plea agreement, she faces all of the same four charges as Wang and three more —engaging in conspiracy to commit wire fraud against lenders of Alameda Research; committing wire fraud on the lenders of Alameda Research; and conspiracy to commit money laundering.

Total maximum sentence: 110 years

A summary of punishment Wang and Ellison could face

The SEC and CFTC have laid out a string of asks for the consequences the FTX executives face, including:

• Permanent injunctions against future securities law violations
• Permanent trading and registration bans
• Restitution
• Disgorgement of their ill-gotten gains
• Civil monetary penalties
• An officer and director bar for a period of time decided by the court

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