Two Members of SBF’s Inner Circle Plead Guilty and Cooperate With Prosecutors

Two of the closest confidants of former FTX CEO Sam Bankman-Fried are cooperating with federal prosecutors and have pleaded guilty to criminal charges, Damian Williams, the U.S. attorney in Manhattan, said Tuesday night.

Caroline Ellison, the former CEO of Alameda Research, a crypto hedge fund controlled by Bankman-Fried, and Gary Wang, an FTX co-founder and the company’s former chief technology officer, pleaded guilty to charges “in connection with their roles in the frauds that contributed to FTX’s collapse,” Williams said in a videotaped statement shared on social media. Williams did not specify the charges but they reportedly include securities fraud and conspiracy.

Customer Assets

Alameda, a trading firm, was key to the FTX collapse after allegedly making billions of dollars worth of wrong-way bets in the crypto markets and then tapping FTX funds to cover the losses. John Ray, a corporate restructuring specialist who took over as FTX’s CEO after it filed for bankruptcy on Nov. 11, estimated the exchange and Alameda lost more than $7B in customer money.

After last week’s arrest of Bankman-Fried, speculation swirled as to whether Ellison and Wang would be charged as well, given their positions at their respective companies and shared residency with the FTX founder in a swank condominium in the Bahamas.

In tandem with the Justice Department’s criminal case, the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission sued Ellison and Wang.

The SEC and CFTC allege Ellison manipulated the price of the FTX-issued FTT token “at the direction of Bankman-Fried,” lied in public about the relationship between Alameda and FTX and traded using FTX customer money.

The CFTC alleges Wang “created features in the code underlying the FTX trading platform that allowed Alameda to maintain an essentially unlimited line of credit on FTX.” Wang also “created other exceptions to FTX’s standard processes that allowed Alameda to have an unfair advantage when transacting on the platform, including quicker execution times and an exemption from the platform’s distinctive auto-liquidation risk management process.”

According to the CFTC, Ellison and Wang pleaded guilty on Monday to the charges filed by the U.S. Attorney’s Office for the Southern District of New York. The SEC, meanwhile, said more allegations were likely to come.

“Investigations into other securities law violations and into other entities and persons relating to the alleged misconduct are ongoing,” the SEC said in a news release.

Williams said much the same in his statement.

“I also said that last week’s announcement would not be our last. And let me be clear once again: neither is today’s,” Williams said. “Let me reiterate a call that I made last week. If you participated in misconduct at FTX or Alameda, now is the time to get ahead of it. We are moving quickly, and our patience is not eternal.”