Bankman-Fried Associates Flip as FTX Founder Arrives in NYC (1)

FTX co-founder Sam Bankman-Fried landed in the US late Wednesday to face a range of criminal charges just as two of his long-time associates said they were cooperating with prosecutors.

The revelation that Caroline Ellison and Gary Wang had pleaded guilty to fraud and were working with federal officials probing the collapse of the crypto exchange is an ominous sign for Bankman-Fried. The 30-year-old is facing an eight-count indictment in New York.

Sam Bankman-Fried, founder of FTX, is escorted out of the Magistrate’s Court in Nassau, Bahamas, on Monday, Dec. 19, 2022.

Photographer: Victor J. Blue/Bloomberg

Bankman-Fried is expected to make his first appearance in Manhattan federal court on Thursday. His lawyers may seek bail.

US authorities are conducting a sprawling investigation into the spectacular collapse last month of FTX, which was once one of the world’s biggest crypto exchanges, and the tightly-connected trading firm Alameda Research. The announcement that Ellison and Wang had pleaded guilty ratchets up pressure on Bankman-Fried and other executives who haven’t yet been charged.

“Let me reiterate a call I made last week,” Damian Williams,the US Attorney for the Southern District of New York, said in a statement. “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.”

A representative for Bankman-Fried, who earlier on Wednesday formally consented to extradition, declined to comment. Ellison’s attorney did not immediately respond to requests for comment.

Ilan Graff, an attorney for Wang, said that his client “has accepted responsibility for his actions and takes seriously his obligations as a cooperating witness.”

Former federal prosecutor Paul Pelletier said the guilty pleas are bad news for Bankman-Fried. Pelletier said defense lawyers know that employees who cooperate early get the best deals from prosecutors.

Source: Bloomberg

“When prosecutors credibly telegraph to the public that they’re going to reward cooperators and that they’re coming after the fraudsters, that’s when company executives pay attention,” he said.

Ellison, who is 28 and the daughter of a professor, has pleaded guilty to seven charges. Wang pleaded to four, according to prosecutors. Both have been released on bail.

Here Are Some of the Allegations Against Ellison, Wang

The plea agreements for Ellison and Wang said that prosecutors will recommend reduced sentences if they provide “substantial assistance” to the investigation.

Bankman-Fried was the face of FTX and its sprawling web of businesses. He appeared on stages around the world flanked by politicians, celebrities and athletes, touting FTX and crypto more generally.

The Securities and Exchange Commission and the Commodity Futures Trading Commission, which have been investigating FTX’s collapse, also sued Wang and Ellison on Wednesday.

Both regulators said in court filings that Wang and Ellison were not contesting liability and had agreed to the entry of judgments that will, among other terms, bar them from trading any security, commodity or crypto asset or serving as a director or officer in a company that does. Monetary penalties have yet to be determined.

Read the Plea Agreements From Associates of FTX’s Bankman-Fried

The SEC alleged Ellison and Wang participated in a multiyear scheme to defraud FTX investors. Between 2019 and 2022 Ellison — at the direction of Bankman-Fried — manipulated the price of FTX’s native token FTT by purchasing large quantities in the open market, according to the SEC complaint.

WATCH: FTX co-founder Sam Bankman-Fried arrived in the US late Wednesday facing an eight-count indictment in New York just as two of his long-time associates said they were cooperating with prosecutors.

Source: Bloomberg

The securities regulator also said that Ellison and Wang knew or should have known Bankman-Fried was falsely touting FTX as a safe crypto trading platform, while at the same time improperly transferring customer funds from FTX to Alameda.

The SEC said Ellison and Wang are cooperating with its ongoing investigation into other individuals or entities potentially tied to the misconduct at FTX.

The CFTC’s complaint, which also alleges fraud, accused Ellison of directing Alameda to use billions of dollars of FTX funds, including customer funds, for trades on other crypto exchanges and to pay for high-risk investments. According to that lawsuit, Wang “created features in the code underlying the FTX trading platform that allowed Alameda to maintain an essentially unlimited line of credit on FTX.” The CFTC said the two former executives didn’t contest their liability on its claims.

Ellison, former chief executive of Alameda, Wang and colleague Nishad Singh were the backbone of Bankman-Fried’s inner circle. Singh hasn’t been accused of wrongdoing by US authorities. Wang co-founded FTX with Bankman-Fried.

Wang met Bankman-Fried at math camp in high school and was his roommate at the Massachusetts Institute of Technology. Like Bankman-Fried, Wang was also once one of the richest twentysomethings on the planet — with a stake in the business worth as much as $1.6 billion in March, according to the Bloomberg Billionaires Index.

Ellison, who knew Bankman-Fried from their time together at quantitative trading shop Jane Street and had been previously romantically linked to him, joined Alameda in its early days.

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(Updates with Ellison and Wang agreeing to judgments in SEC, CFTC cases.)

--With assistance from Beth Williams.

To contact the reporters on this story:
Ava Benny-Morrison in New York at abennymorris@bloomberg.net;
Allyson Versprille in Washington at aversprille1@bloomberg.net;
David Voreacos in New York at dvoreacos@bloomberg.net

To contact the editors responsible for this story:
stacy-marie ishmael at sishmael@bloomberg.net

Joe Schneider, Ben Bain

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