Two high-level associates of FTX founder Sam Bankman-Fried have pleaded guilty to fraud charges relating to the spectacular implosion of the cryptocurrency exchange.
Carolyn Ellison, the former CEO of trading firm Alameda Research, and FTX co-founder and chief technology officer Gary Wang are co-operating with a wide-ranging investigation into criminal misdemeanors at bankrupt crypto exchange FTX.
According to a charge sheet prepared by the SEC, between 2019 and 2022, Ellison, at the direction of Bankman-Fried, furthered the scheme by manipulating the price of FTT, an FTX-issued exchange crypto security token, by purchasing large quantities on the open market to prop up its price.
In doing so, Bankman-Fried and Ellison caused the valuation of Alameda’s FTT holdings to be inflated, which in turn caused the value of collateral on Alameda’s balance sheet to be overstated, and misled investors about FTX’s risk exposure.
In addition, from at least May 2019 until November 2022, Bankman-Fried is said to have raised billions of dollars from investors by falsely touting FTX as a safe crypto asset trading platform with sophisticated risk mitigation measures to protect customer assets and by telling investors that Alameda was just another customer with no special privileges; meanwhile, Bankman-Fried and Wang improperly diverted FTX customer assets to Alameda.
The SEC also alleges that Ellison and Wang were active participants in the scheme to deceive FTX’s investors and engaged in conduct that was critical to its success. The complaint alleges that Wang created FTX’s software code that allowed Alameda to divert FTX customer funds, and Ellison used misappropriated FTX customer funds for Alameda’s trading activity.
"As alleged, Mr. Bankman-Fried, Ms. Ellison, and Mr. Wang were active participants in a scheme to conceal material information from FTX investors, including through the efforts of Mr. Bankman-Fried and Ms. Ellison to artificially prop up the value of FTT, which served as collateral for undisclosed loans that Alameda took out from FTX pursuant to its undisclosed, and virtually unlimited, line of credit," says Sanjay Wadhwa, deputy director of the SEC’s Division of Enforcement. "By surreptitiously siphoning FTX’s customer funds onto the books of Alameda, defendants hid the very real risks that FTX’s investors and customers faced."
Bankman-Fried has been extradited from the Bahamas and is now the custody of the FBI. He is due in a US federal court to face his charges today.
Elsewhere in the murky world of illicit finance, defendants in the Wirecard case have sought to pin the blame on each other for the catastrophic collapse of the firm in 2020. Lawyers representing former CEO Marcus Braun have sought to discredit the prosecutor's chief witness Oliver Bellenhaus, the former head of Wirecard’s Dubai-based subsidiary.
Bellenhaus has pleaded guilty to his role in the racket and sought to finger Braun as the mastermind behind the fraud.
Braun's legal team allege that Bellenhaus deleted data on servers in Dubai that would have proven the existence of the firm’s outsourced business in Asia.
Bellenhaus has denied that charge, saying that instead he shut down the servers only after auditors had used them.
Questions were also asked over the shuttling of funds to a private foundation in Lichtenstein, which Bellenhaus claims was a bonus for him that had been approved by Wirecard executives.