Two of Samuel Bankman-Fried’s accomplices have pleaded guilty to criminal offenses surrounding the FTX collapse and are cooperating with the prosecution. This was announced by New York Southern federal prosecutor Andre Damian Williams Jr. on Wednesday evening (local time). They are Caroline Ellison, CEO of Alameda Researchs, and FTX CTO Zixiao “Gary” Wang. He co-founded Alameda Research and FTX with Samuel Bankman-Fried.
The same federal prosecutor’s office has indicted Bankman-Fried eight times and arrested the American, known as SBF, in the Bahamas. He had been held there for extradition since December 12. Bankman-Fried agreed to his extradition. Therefore, he will be transported to New York tonight and will be tried there. Ellison and SBF have had an intimate relationship in the past. Ellison and Wang are apparently at large. Indictments against the two are expected to be made public in the coming days.
Comparison with the SEC
The U.S. Securities and Exchange Commission (SEC) filed a civil complaint against Ellison and Wang on Wednesday and released it that evening (SEC c. Ellison and Wang, US District Court for Southern New York, case no. 22-cv-10794). The authority accuses the defendants of defrauding investors and account holders with Bankman-Fried since FTX was founded in May 2019. Ellison and Wang are also cooperating with the SEC (Securities Exchange Commission) and have already reached a partial settlement with the United States Securities and Exchange Commission.
Among other things, Ellison manipulated the rate of the FTT cryptocurrency. The scheme would have been impertinent: FTX invented the “currency” FTT. Alameda Research bought them in bulk to support the price, then used FTT virtual coins as “collateral” to borrow real money or other crypto assets from FTX. However, these funds did not belong to FTX at all, but to account holders.
At the same time, the high rate of paper-based TTFs inflated Alameda Research’s total assets. This misled investors about FTX’s risk stance. Deceived on this basis, they would then have invested in FTX, specifies the SEC.
Direct access to third-party assets
Managers did not disclose the actual “values” behind Alameda’s balance sheet; the coindesk.com site did so on November 2. She revealed that Alamede’s “fortune” consisted mainly of FTT. This led to a crash in the FTT price and a run on FTX deposits. The Potemkin village collapsed, the network of 135 companies around Alameda Research and FTX had to file for bankruptcy. There is no deposit insurance for customers.
Wang programmed the software that allowed Alameda Research to access FTX customer deposits. Ellison used this software to hijack deposits and abuse it for crypto betting. Even when it was clear the bets weren’t having the intended effect and there was no prospect of compensation for depositors, the trio reportedly transferred hundreds of millions of additional dollars from FTX’s holdings to Alameda. Research. The allegations against Bankman-Fried are unproven, he is presumed innocent.
Legally, the SEC accuses Ellison and Wang of having violated the provisions of prevention of the fraud in the laws on the capital markets (Securities Act 1933 and Securities Exchange Act 1934). She seeks an injunction, forfeiture of unlawful enrichment plus interest, civil penalties, and a ban on offering securities (including cryptocurrencies) for sale beyond personal needs. Additionally, Ellison and Wang should be banned from working as managers or directors in the capital markets industry.
Prosecutor Williams announces new charges against those involved. He again urges those who are not doing any good to get in touch: “We are progressing rapidly and our patience is not endless.” Its officials continued to work around the clock, especially since there was still work to be done.
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