US regulators have charged two former executives of FTX crypto exchange with defrauding investors. The news came while FTX founder Sam Bankman-Fried left the Bahamas on a US-bound flight.
The US Securities and Exchange Commission (SEC) and the US Commodity Futures Trading Commission have filed charges against Caroline Ellison, the former CEO of Alameda Research, and Gary Wang, the co-founder of FTX, who are said to be cooperating with the government.
Manhattan US Attorney Damian Williams said in a video posted on Twitter late on Wednesday night that Ellison and Wang had pleaded guilty to defrauding investors in the crypto trading platform.
The revelation that two of Bankman-Fried’s closest former associates had decided to cooperate with the government significantly ramped up pressure on the former billionaire.
Williams said Bankman-Fried was now in FBI custody and on his way to the US and urged others involved in the alleged fraud to come forward.
“If you participated in misconduct at FTX or Alameda, now is the time to get ahead of it,” William said. “We are moving quickly and our patience is not eternal.”
Price of FTT ‘Manipulated’
In its statement, the SEC said it had charged Ellison and Wang for their roles in a multi-year scheme to defraud equity investors of FTX.
It said: “Between 2019 and 2022, Ellison, at the direction of Bankman-Fried, furthered the scheme by manipulating the price of FTT, an FTX-issued exchange crypto security token, by purchasing large quantities on the open market to prop up its price.
“FTT served as collateral for undisclosed loans by FTX of its customers’ assets to Alameda, a crypto hedge fund owned by Wang and Bankman-Fried and run by Ellison.
“The complaint alleges that, by manipulating the price of FTT, Bankman-Fried and Ellison caused the valuation of Alameda’s FTT holdings to be inflated, which in turn caused the value of collateral on Alameda’s balance sheet to be overstated, and misled investors about FTX’s risk exposure.”
Ilan Graff, a lawyer for Wang, said in a statement: “Gary has accepted responsibility for his actions and takes seriously his obligations as a cooperating witness.”
An attorney for Ellison did not respond immediately to request for comment.
Bankman-Fried Due in New York Court
Federal prosecutors in Manhattan last week charged Bankman-Fried with stealing billions of dollars in FTX customer assets to plug losses at his hedge fund, Alameda Research, in what US Attorney Williams called “one of the biggest financial frauds in American history.”
The 30-year-old cryptocurrency mogul has acknowledged risk-management failures at FTX, but has said he does not believe he has criminal liability.
A spokesman for Bankman-Fried’s legal team declined to comment.
Bankman-Fried rode a crypto boom to become a billionaire several times over and an influential US political donor, before FTX’s crash wiped out his wealth and tarnished his reputation. The collapse was driven by a wave of customer withdrawals amid concerns over commingling of funds with Alameda.
The announcement from Williams and the SEC came just hours after Bankman-Fried took off from The Bahamas after he consented at a courthouse to be extradited to the United States.
Bankman-Fried is likely to appear before a US federal court in Manhattan on Thursday. At his court appearance, known as an arraignment, he is expected to be asked to enter a plea. The US judge would determine whether to grant him bail, and if so, on what conditions.
He is expected to face eight charges, including wire fraud, money laundering, and campaign finance violations.
Bankman-Fried was arrested on a US extradition request last week in The Bahamas, where he lives and where FTX is based. He initially said he would contest extradition, but he later said he would reverse that decision.
He agreed to extradition in part out of a “desire to make the relevant customers whole,” according to an affidavit read in court on Wednesday and dated December 20.
Dressed in a suit, Bankman-Fried stepped up to the witness box in court, where he spoke clearly and steadily as he was sworn in.
“Yes, I do wish to waive my right to such formal extradition proceedings,” he told Judge Shaka Serville.
Bankman-Fried’s defence lawyer, Jerone Roberts, said his client was “anxious to leave.”
The judge said he was satisfied that and that Bankman-Fried had not been “forced, coerced or threatened” into making the extradition decision.
The $32 billion exchange declared bankruptcy on November 11, and Bankman-Fried stepped down as CEO the same day.
- Reuters with additional editing by Jim Pollard