The investigation into the bankruptcy of Sam Bankman-Fried’s cryptocurrency empire is underway.
US regulators just won two major victories in quick succession.
They have announced that they have received the cooperation of two Bankman-Fried employees, which should allow them to build their case against the 30-year-old former trader.
Zixiao (Gary) Wang, 29, former co-founder of FTX and chief technology officer, and Caroline Ellison, 28, the former CEO of Alameda Research, the hedge fund founded by Bankman-Fried, have pleaded guilty to federal charges in the Southern District of New York, according to court documents published Dec. 21.
Both agreed to provide authorities with whatever information they had to further assist in the investigation.
“The United States Attorney’s Office for the Southern District of New York will accept a guilty plea from Caroline Ellison,” federal prosecutors announced.
“As I said last week, this investigation is in full swing,” US Attorney Damian Williams said in a pre-recorded message.
Appearance in Manhattan Federal Court
But the biggest win for regulators so far is that Bankman-Fried has waived his challenge for his extradition to the United States, meaning he will have to face charges against him in person. He lives in the Bahamas, where FTX is also headquartered.
The former trader made an unexpected turnaround regarding his extradition a few days ago. He landed in New York on the evening of December 21. He will make his first appearance in federal court in Manhattan on December 22. More than likely he will ask for bail.
Federal prosecutors want to press their advantage. They pressure other employees of FTX and Alameda Research, the two flagship companies of the Bankman-Fried empire, to turn against their former boss.
“Let me repeat a call I made last week,” US Attorney Damian Williams said in a pre-recorded message. “If you have participated in misconduct at FTX or Alameda, now is the time to get ahead of it. We are moving fast and our patience is not eternal.”
FTX’s demise began on November 6, when Changpeng Zhao, Bankman-Fried’s rival and founder of the Binance cryptocurrency exchange, announced that his group would be selling its FTT. The reason Zhao gave was that he had doubts about Alameda’s balance.
FTT was the cryptocurrency issued by FTX.
The announcement, made on Twitter, sparked a run on FTX by its customers, who attempted to withdraw their funds in the form of cryptocurrencies. SBF said on Nov. 7 that the assets were “fine,” but it was too late.
On November 8, he announced that he had reached an agreement with Zhao to sell him his empire. But the next day, Zhao came back and waived the deal because the financial situation of FTX and Alameda was more precarious than expected.
SBF tried to find another savior, but eventually filed for Chapter 11 bankruptcy on November 11. He resigned and was replaced by John Ray, the liquidator of the energy broker Enron.
$9 billion
Since then, there have been surprising revelations about the Bankman-Fried regime, piling up from Ray, and especially from regulators trying to figure out what caused the bankruptcy of FTX, which was still valued at $32 billion in February, in a matter of days.
On Dec. 13, U.S. regulators — the Justice Department, the SEC and the Commodity Futures Trading Commission, or CFTC — filed a series of criminal and civil charges against the former trader.
Justice Department prosecutors filed eight charges against Bankman-Fried, according to the indictment that was unsealed Dec. 13. Four of the charges, including conspiracy to commit telephone fraud with customers and lenders and electronic fraud, indicate that the alleged acts began as far back as 2019. This is the year FTX was founded.
“Bankman-Fried orchestrated a massive, years-long fraud, diverting billions of dollars of the trading platform’s client funds for his own personal gain and to grow his crypto empire,” the SEC alleges in its civil complaint.
He used client money to make “undisclosed venture investments, lavish real estate purchases and large political donations,” according to the complaint.
Mark Cohen, a lawyer for Bankman-Fried, said his client is “discussing the charges with his legal team and considering all of his legal options.”
Bankman-Fried was arrested on December 12 in the Bahamas, where he lived, at the request of US authorities. Initially, Bankman-Fried considered challenging his extradition. A hearing to that effect was scheduled for February 8, but he later changed his mind.
The fall of FTX has already caused $9 billion in losses for clients of the cryptocurrency exchange, according to Chainalysis. But this number does not take into account potential losses for people who have deposited their money with the exchange.
