Former CEO of Alameda Research, Caroline Ellison, and former CTO of FTX Trading Ltd., Zixiao (Gary) Wang, have been charged with defrauding investors.
US Attorney Damian Williams announced in a video statement on Wednesday evening that both defendants have pleaded guilty for the criminal charges and have agreed to cooperate with the prosecution.
He also confirmed that Sam Bankman-Fried, founder of FTX, is in FBI custody. The former CEO of FTX has eight charges brought against him last week by the US Attorney’s office. Bankman-Fried is due to appear in a Manhattan court on Thursday for a bail request.
The Financial Times reported that Caroline Ellison pleaded guilty to seven counts, among which are wire and securities fraud and conspiracy to commit money laundering. If convicted, she may face 110 years in prison as maximum sentence. Wang pleaded guilty to four counts of fraud and may face 50 years imprisonment as maximum penalty.
The prosecutors on the case have said they will not oppose bail if the defendants submit their travel documents and fulfil other conditions.
In separate actions, the US Securities and Exchange Commission (SEC) has also charged Ellison and Gary Wang for their roles in a multiyear scheme to defraud equity investors of the crypto trading platform FTX. Additionally, the Commodity Futures Trading commission, filed fraud charges against the two execs.
SEC Chair Gary Gensler said:
As part of their deception, we allege that Caroline Ellison and Sam Bankman-Fried schemed to manipulate the price of FTT, an exchange crypto security token that was integral to FTX, to prop up the value of their house of cards.
We further allege that Ms. Ellison and Mr. Wang played an active role in a scheme to misuse FTX customer assets to prop up Alameda and to post collateral for margin trading. When FTT and the rest of the house of cards collapsed, Mr. Bankman-Fried, Ms. Ellison, and Mr. Wang left investors holding the bag.
The CFTC alleges that Wang created the features on the FTX trading platform that allowed Alameda “to maintain an essentially unlimited line of credit on FTX.”
The CFTC stated:
As further alleged, at Bankman-Fried’s direction, FTX executives including Wang 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. These critical code features and structural exceptions allowed Alameda to secretly and recklessly siphon FTX customer assets from the FTX platform.
