Caroline Ellison and Gary Wang charged as Sam Bankman-Fried heads back to the US

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Things are looking grimmer for FTX CEO Sam Bankman-Fried and former FTX employees. The U.S. Securities and Exchange Commission (SEC), together with the Southern District of New York (SDNY), has filed charges against former Alameda Research CEO Caroline Ellison and former FTX CTO Zixiao “Gary” Wang. The SDNY also announced that Ellison and Wang were helping prosecutors with their investigations.

The news comes as Bankman-Fried is on his way to the United States after agreeing to extradition from the Bahamas earlier this week. Photos showed SBF about to board a plane in Nassau, in handcuffs and accompanied by police.

NEW photos of SBF boarding a flight from Nassau for extradition. Thanks to producer extraordinaire @NashvilleDebPJ
Credit: Royal Bahamas Police Force pic.twitter.com/Strc4lgPrQ

— Ezra Kaplan (@EzraKaplan) December 22, 2022

The SEC’s complaint said Ellison had engaged in a “multiyear scheme” to defraud FTX’s investors and customers, and at SBF’s direction, had manipulated the price of the FTT token by purchasing large quantities on the open market to use it as collateral for undisclosed loans.

It named Ellison and Wang as “active participants” in the scheme and concealed this information from FTX investors. Ellison had misappropriated customer funds from FTX to use in Alameda’s trading activity, while Wang had created the software that allowed this to happen, it added.

The SEC also mentioned that it regards the FTT token as a security and that Ellison and Wang had violated the anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934.

SDNY charges, and what about other FTX employees?

The Southern District of New York announced its own charges against SBF, Ellison, and Wang, mentioning that its investigation was “far from over” and would eventually name others involved in the scheme.

U.S. Attorney of SDNY Damian Williams followed up his announcement of charges against Bankman-Fried with another today, revealing the indictments against Ellison and Wang. He also referred to FTX’s network as “a sweeping fraud scheme” and “a campaign finance scheme that sought to influence public policy in Washington.”

“I also said that last week’s announcement would not be our last. And let me be clear once again, neither is today’s. I want to make two announcements. First, I’m announcing that the Southern District of New York has filed charges against Caroline Ellison, the former CEO of Alameda Research, and Gary Wang, a co-founder of FTX, in connection with their roles in the fraud that contributed to FTX’s collapse.”

He also called for other former FTX employees to come forward with useful information, hinting this would be the best way to avoid harsher consequences themselves in the future:

“Both Ms. Ellison and Mr. Wang have pled guilty to those charges, and they are both cooperating with the Southern District of New York. 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,” the attorney added.

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

Speculation was rife on social media that Ellison and Wang have “flipped” on SBF, possibly doing a deal with prosecutors to provide valuable information in return for lesser sentences themselves. There are also questions about what will happen to other prominent FTX executives, such as former co-CEO Sam Trabucco and former Chief Compliance Officer Daniel Friedberg. 

Trabucco stepped down as co-CEO in August 2022, saying he “needed to relax” and planned to buy a boat. His departure left Ellison as the sole chief executive at Alameda. His last tweet was on November 9, and (with hindsight) carries an ominous tone:

Much love to everyone — I'm sure the past few days have been dark for many and I hope the road ahead is brighter.

— Sam Trabucco (@AlamedaTrabucco) November 8, 2022

As we’ve mentioned here before, Friedberg was also involved in the scandal that took down Absolute Poker (AP) and Ultimate Bet (UB) during online gambling’s “Black Friday” in April 2011.

Other reports named former Director of Engineering Nishad Singh and former co-CEO of FTX Digital Markets Ryan Salame as potential persons of interest to investigators.

Just how much of the “crypto industry” will be impacted by the SEC/SDNY’s investigations and charges is uncertain, though their statements indicate it could be wide-reaching. SDNY’s explicit mention of a political influence campaign suggests FTX’s past donations to U.S. political campaigns won’t buy them any favors. We await further details and names as investigations into blockchain‘s incestuous financial networks dig deeper into the mess.

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