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Caroline Ellison and FTX Co-Founder Gary Wang Plead Guilty to Fraud

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Two former executives of Sam Bankman-Fried’s crypto trading empire have pleaded guilty to federal criminal fraud charges and are helping prosecute a disgraced crypto entrepreneur, according to the Southern District of New York federal state. Prosecutors said Wednesday night.

The two are Caroline Ellison, 28, former CEO of cryptocurrency hedge fund Alameda Research, and Gary Wang, 29, founder of cryptocurrency exchange FTX. They were key lieutenants in Bankman-Fried’s vast business empire, an international network of investments and companies beginning with the founding of Alameda and his FTX.

Two federal regulators, the Securities and Exchange Commission and the Commodity Futures Trading Commission, also filed civil fraud charges against Ellison and Wang on Wednesday.

The guilty plea and cooperation agreement are a major step forward in federal prosecution for Bankman-Fried, who is in U.S. custody after agreeing to be extradited from the Bahamas to face trial in the Southern District of New York.

A combination of criminal and civil lawsuits against the former chief executive puts 30-year-old Bankman-Fried in an even more dangerous legal position. The federal government has accused him of orchestrating a widespread multi-year fraud that led to his FTX bankruptcy last month after a bank run on the equivalent of cryptocurrencies. Two of his closest advisers are now working with the government as it pursues the case.

Mr. Wang and Mr. Ellison were not only close colleagues of Mr. Bankman-Fried. The three shared a lavish penthouse in the Bahamas, home of FTX, and Bankman-Fried and Ellison were once romantically involved.

Amid the indictment against Bankman-Fried, prosecutors and regulators allege that customers’ money was stolen from them, including buying real estate in the Bahamas, trading cryptocurrencies in Alameda, contributing to campaigns, and investing in other crypto companies. He was charged with diversion to other uses. Prosecutors allege he defrauded clients, investors and lenders of his crypto trading firm.

The allegations revealed Wednesday have led prosecutors and regulators to believe that Bankman-Fried was never alone in carrying out his plans, following his instructions and playing a key role in carrying out the fraud. The SEC said that Ellison misused FTX customer deposits to fund Alameda’s trading activities and that Wang He said he had created software that would allow the diversion of funds.

“Ellison and Wang actively participated in a scheme to defraud FTX’s investors and engaged in conduct critical to FTX’s success,” the SEC said in a statement.

The FTX bankruptcy and Bankman-Fried indictment dealt a heavy blow to the cryptocurrency industry, which had been reeling for months as prices of digital assets such as Bitcoin and Ether plummeted and a procession of major companies filed. .bankruptcy. FTX’s sudden implosion has upset customers of other crypto trading platforms, scrambling to assure investors their money is safe.

Ellison and Wang’s guilty pleas could enlist other former senior officials to cooperate with authorities in the lawsuit against Bankman-Fried, who faces fraud, money laundering, campaign finance violations and other charges. There is

In a statement recorded Wednesday night, U.S. Attorney Damien Williams said: Said Mr. Wang and Mr. Ellison were indicted “in connection with their role in misconduct that contributed to the demise of FTX.”

Mr. Williams also echoed a point he made last week when his office filed criminal charges against Mr. Bankman-Fried. “If you were complicit in cheating on FTX or Alameda, now is the time to get ahead,” he said. “We are moving quickly and our patience is not forever.”

Williams added that Bankman-Fried is in FBI custody, has been brought back to the United States from the Bahamas, and plans to appear before a judge as soon as possible. The crypto entrepreneur is scheduled to appear in federal district court as early as Thursday.

A lawyer for Ellison declined to comment. Mr Wang’s attorney Ilan Graf said, “Mr Gary accepts responsibility for his actions and takes seriously his duty as a co-witness.”

In a two-week media blitz before his December 12 arrest, Bankman-Fried claimed he had done nothing wrong and had no intention of deceiving anyone. He also claimed that he was not fully aware of what was happening at Alameda.

A spokeswoman for Bankman-Fried declined to comment.

The guilty pleas by Ellison and Wang appear to be sealed under a court order, but their plea bargain was made public by prosecutors Wednesday night. Ellison pleaded guilty to seven counts. I was. He was charged with two counts of wire fraud and five counts of conspiracy to commit wire, securities, commodity fraud and money laundering. Mr. Wang pleaded guilty to three conspiracy charges, including wire fraud and wire fraud, securities fraud and commodity fraud.

In the agreement signed Monday, Ellison and Wang said they would “cooperate fully” with the U.S. Attorney’s Office, the FBI and other law enforcement agencies to “report all information truthfully and completely on all matters.” I promised to disclose.” they are asked.

In its complaint, the SEC said that Ellison, under the direction of Bankman-Fried, manipulated the price of a digital currency created by FTX called FTT and bought large amounts to boost its price. Alameda said he is one of the major companies trading FTT and used cryptocurrency tokens as collateral for loans obtained from other large cryptocurrency companies to finance the transaction.

Investors, lenders, and customers were unaware of how closely FTX and Alameda were essentially operating as one entity, officials said.

The Commodity Futures Trading Commission accused Ellison of aiding Bankman-Fried by making deceptive and misleading statements about the separation of Alameda and FTX.

According to the commission, Wang further fostered these close relationships by creating a system that gave Alameda an unfair advantage over other customers when executing trades on the FTX platform.

After graduating from Stanford University, Mr. Ellison met Mr. Bankman Freed at the mass retailer Jane Street. Both were involved in Effective Altruism, a community focused on using data to maximize the long-term impact of charitable giving.

Bankman-Fried left Jane Street to eventually found Alameda in 2017. Mr. Ellison joined him in 2018 and quickly became a member of his inner circle. She followed him to Hong Kong, and in 2019 she became CEO of Alameda after Bankman-Fried founded her FTX with her Wang.

Mr. Wang was also a member of the Effective Altruism community. Prior to working with Bankman-Fried, he was a software engineer at Google, developing a price aggregation system for Google flights. Since FTX’s inception, he’s kept a low profile, allowing Bankman-Fried to become the face of the exchange.

But behind the scenes, Wang played a key role at FTX, as one of the executives responsible for writing the software code for the platform, according to the SEC.

When FTX collapsed, Ellison gathered a group of employees who worked at Alameda’s Hong Kong office and confessed that the company was using customer deposits to cover shortfalls in accounts, according to New York. The Times previously reported. She said she, Bankman-Fried, Wang and her Nishad Singh, another of her executives, were all aware of the plan.

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