Caroline Ellison, former CEO of Alameda Research and Sam Bankman-Fried's co-founder for FTX, has pleaded guilty to federal fraud charges as part of a deal for leniency in her own case.
The plea deal also includes Zixiao (Gary) Wang, another FTX co-founder. Bankman-Fried and Ellison were charged with securities fraud, wire fraud and conspiracy to commit securities fraud. The two former FTX executives allegedly lied about the company's financial health and its ability to meet revenue expectations, while also hiding the fact that they had been selling most of their stock in order to pay off debts and disseminate investments into other shady dealings.
According to the Commodity Futures Trading Commission (CFTC), Wang was involved in the creation of certain features in the now-defunct exchange's contract and trading platform code which then allowed Alameda Research to maintain an "essentially unlimited line of credit on FTX" while also adjusting parameters for Alameda to gain an "unfair advantage when transacting on the platform," with faster trade execution finality and exemptions from other control parameters placed for regular clients.
"These critical code features and structural exceptions allowed Alameda to secretly and recklessly siphon FTX customer assets from the FTX platform," the CFTC stated.
The plea deal was made in the Southern District of New York Court. Bankman-Fried, who just recently paid a $250 million bail after his hearing in Manhattan, faces eight charges for securities fraud and allegations of diverting cash to Alameda Research, which at the time was run by Ellison as a crypto hedge fund.
Bankman-Fried and Ellison also face separate charges in California, where they were charged for two counts of conspiracy to commit securities fraud and wire fraud, as well as one count of securities fraud. Alameda Research was also charged for its part in the alleged scheme. These charges include wire fraud, wire fraud conspiracy and conspiracy to commit money laundering, each of which carries a maximum prison terms of 20 years.
"Until crypto platforms comply with time-tested securities laws, risks to investors will persist," he continued. "It remains a priority of the SEC to use all of our available tools to bring the industry into compliance." stated Gary Gensler, 33rd Chair of the SEC.
According to the U.S. Securities and Exchange Commission, a separate charge has also been made towards Wang and Ellison's involvement in defrauding equity investors from FTX. confirm that both Wang and Ellison have signed for full cooperation with New York officials, building the case against Bankman-Fried.
"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," warned U.S. Attorney Damian Williams in a video statement.
Statement of U.S. Attorney Damian Williams on U.S. v. Samuel Bankman-Fried, Caroline Ellison, and Gary Wang pic.twitter.com/u1y4cs3Koz— US Attorney SDNY (@SDNYnews) December 22, 2022
Bankman-Fried was charged for a multiyear fraud that diverted billions in customer money towards personal use, as well as a series of real estate acquisitions in the Caribbean Islands.
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