Two prominent executives embroiled in the FTX scandal pleaded guilty to federal charges, the top prosecutor for the Southern District of New York announced Wednesday.
Caroline Ellison, former CEO of Alameda Research, and Zixiao “Gary” Wang, the former chief technology officer and co-founder of FTX, are said to be cooperating with prosecutors and were also hit with a civil complaint from the Securities and Exchange Commission for alleged fraud.
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“Both Miss Ellison and Mr. Huang have pled guilty to those charges, and they’re both cooperating,” U.S. Attorney Damian Williams revealed. “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.”
Williams declined to divulge the specific charges against Ellison or Wang. They are now the second and third prominent executives charged in the FTX collapse, along with FTX founder Sam Bankman-Fried, who Williams confirmed was brought into FBI custody during his extradition from the Bahamas. Bankman-Fried has been charged with eight counts of fraud and campaign finance violations.
The SEC accused Ellison and Wang of violating anti-fraud provision regulations and is seeking to have the pair banned from engaging in the sales of securities in the future. Ellison and Wang participated in “a multiyear scheme to defraud equity investors in FTX, the crypto trading platform co-founded by Samuel Bankman-Fried and Wang,” the SEC alleged.
“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,” Sanjay Wadhwa, deputy director of the SEC’s Division of Enforcement, said.
FTX had emerged as a white knight in the crypto world during a summer downturn in the industry by bailing out floundering firms. Then in November, questions about its finances reached a fever pitch after a deal with rival firm Binance collapsed. Markets became spooked, and the company later filed for bankruptcy.
It was then revealed that FTX diverted billions of dollars’ worth of customer money to fund risky investments in Bankman-Fried’s trading firm, Alameda Research, which later went bankrupt.
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Wang created a backdoor in FTX’s systems to enable Alameda to divert funds, the SEC alleged. Ellison allegedly artificially manipulated the FTX’s crypto token to expand collateral for Alameda Research’s investments, per the SEC.
Ellison, 28, assumed control of Alameda Research in 2021, and Wang, 29, helped co-found FTX back in 2019.
