Following the recent FTX upheaval, the CEO of Alameda Research, a sister firm to FTX, Caroline Ellison, and FTX Co-founder Gary Wang have both pleaded guilty to fraud.
Caroline Ellison and Gary Wang who are colleagues of former FTX CEO Sam Bankman-fried who is currently in custody, have both pleaded guilty to their roles in the fraudulent activities that contributed to the collapse of FTX.
Caroline has reportedly pleaded guilty to seven counts of conspiracy to commit wire fraud on customers of FTX, conspiracy to commit wire fraud on lenders of Alameda Research, as well as wire fraud on lenders of Alameda.
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Alongside, she also pleaded guilty to conspiracy to commit commodities fraud, conspiracy to commit securities fraud, and conspiracy to commit money laundering.
On the other hand, FTX co-founder Gary Wang pleaded guilty to just four counts, which included conspiracy to commit wire fraud on customers of FTX, wire fraud on customers of FTX, conspiracy to commit commodities fraud, and conspiracy to commit securities fraud.
A U.S attorney in a Southern New York court disclosed that both parties are cooperating with prosecutors as they continue to divulge vital information that has been helpful in the investigation process.
On Wednesday, the Securities and Exchange Commission (SEC) announced civil fraud charges against Ellison and Wang for their roles in a multiyear scheme to defraud equity investors in FTX.
In a complaint filed by SEC, it alleged that FTX Co-Founder Wang created FTX’s software code that allowed Alameda to divert FTX customer funds, while Ellison used those funds for Alameda’s trading.
SEC also alleged that Ellison and Wang worked with Sam Bankman-Fried to move hundreds of millions of dollars of FTX customer funds to Alameda after they realized the companies didn’t have enough assets to pay back customers.
The Commission in its complaint further stated that in May 2019 around when FTX was founded, some customer funds went immediately into Alameda Research accounts, noting that fraudulent activity began earlier on.
Recall that in August 2022, an account on Twitter @tier10k had alleged that Sam Bankman-fried FTX and Alameda research merged their VC operations which he however debunked.
In a response to the Tweet, he wrote,
“This seems like a big misrepresentation to me! FTX has been doing more ventures recently, and I guess maybe Alameda has been doing less. That’s a really different thing than what the headline implies!
“I think maybe a line was misinterpreted. IDK — FTX‘s venture investing is concentrated under FTX Ventures; that’s different from Alameda’s ventures, which aren’t…
“Also, following the collapse of FTX, one key accusation leveled against SBF is that he used customer funds from his crypto exchange to fund risky bets at his trading firm Alameda Research.”
this seems like a big misrepresentation to me!
FTX has been doing more venture recently, and I guess maybe Alameda has been doing less? That's a really different thing than what the headline implies! https://t.co/qQUCOHtIUg
— SBF (@SBF_FTX) August 25, 2022
In an interview held last month, Bankman-fried admitted that he made a lot of mistakes as CEO, but denied that he used FTX’s funds at Alameda.
“I didn’t knowingly commingle funds,” he said, arguing that it was a “failure of oversight” rather than anything malicious.
He went on to distance himself from Alameda altogether in the interview.
“I wasn’t running Alameda, I was nervous because of the conflict of interest of being too involved”, he said.
SBF went on to claim that he was not aware of the depth of the relationship between FTX and Alameda Research, nor the sizable amount of funds transferred between the exchange and trading house.
When asked about the blurred lines between his FTX and Alameda research, Bankman-Fried denied any conflict of interest, stating that FTX was a neutral piece of market infrastructure.
Meanwhile, FTX’s crash from a $32 billion cryptocurrency powerhouse into bankruptcy, has led to a massive liquidity crisis for Alameda research despite his claims of no connection.