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FTX executives plead guilty to throwing SBF under the bus

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Alameda Research CEO Caroline Ellison (left) and FTX co-founder Gary Wang (right), who both pleaded guilty to federal fraud charges.

Alameda Research CEO Caroline Ellison (left) and FTX co-founder Gary Wang (right), who both pleaded guilty to federal fraud charges.
screenshot: Twitter/Post0x

Two executives linked to FTX, the bankrupt cryptocurrency exchange once valued at $32 billion, have pleaded guilty to criminal charges, according to U.S. Attorney Damian Williams, who made the announcement in a video. released late Wednesday. And that’s really bad news for FTX co-founder Sam Bankman-Fried because executives say they broke the law under Bankman-Fried’s leadership.

It seems that while Bankman-Fried, also known as SBF, embarked on a whirlwind media tour to win hearts and minds with his “gee-shucks, how could I ever do such a mistakeact, its partners in crypto-crime were in the process of making a deal with the federal government.

FTX co-founder Gary Wang pleaded guilty to four counts, including wire fraud, conspiracy to commit wire fraud, conspiracy to commit commodity fraud, and conspiracy to commit fraud. securities fraud. The 29-year-old previously worked at Google and met SBF in high school math camp together, according to CoinDesk. Wang faces a maximum of 50 years in prison, according to ABC News.

Alameda Research CEO Caroline Ellison, who was allegedly romantically involved with SBF at one time, pleaded guilty to seven counts, including wire, conspiracy to commit wire fraud, conspiracy to commit securities fraud and conspiracy to launder money. Ellison and SBF met while working together at the Jane Street trading company. The 28-year-old faces a maximum of 110 years in prison.

SBF was arrested in the Bahamas last week and charged with eight counties in the United States, including wire fraud, money laundering and illegal political donations. SBF, who was a very public supporter of Democrats and a private supporter of Republicans, was in jail in the Bahamas, where he originally planned to fight extradition to the United States. But that plan changed after a few days. in the ringing.

SBF tried to claim during his post-collapse media tour that he didn’t know what was going on at Alameda Research, the hedge fund he founded with FTX. SBF even claimed that he didn’t knowingly mix funds between Alameda and FTX, but the explanation was obviously bullshit, given that SBF would admit in those same interviews that FTX users would send money to Alameda to see their accounts debited on the crypto platform. Why? Because no one would give FTX a bank account. Alameda Research, as SBF explained in 2021was a name deliberately chosen to sound boring and respectable, which eventually got him a bank account.

“Even the name, Alameda Research, I understand there’s a backstory to why the name Research is there…” podcast host Ash Bennington asked in June 2021.

“Yeah, I mean, it’s kind of a quick backstory, which is just like, I don’t know, it doesn’t sound bad,” SBF replied with a laugh.

“I don’t want to give banks reasons not to give us accounts and kind of like, especially in 2017, if you name your business, like, ‘we do cryptocurrency, bitcoin, arbitrage , multinational stuff’, nobody’s gonna give you a bank account if that’s your company name […] but everyone wants to serve a research institute,” SBF continued.

In addition to those criminal charges outlined by the Justice Department, the SEC announced civil charges against Wang and Ellison on Wednesday night. The SEC complaint alleges that the fraud started all along, defrauding investors of billions of dollars.

From the SEC civil complaint:

FTX has raised over $1.8 billion from investors, including US investors, who have purchased a stake in FTX believing that FTX has appropriate risk management controls and measures in place. Unbeknownst to these investors (and FTX trading clients), Bankman-Fried was orchestrating a massive, years-long fraud, embezzling billions of dollars of trading platform client funds for his own benefit and to help develop his crypto empire. The defendants actively participated in the scheme and engaged in conduct essential to its success.

The SEC also alleges that Wang constructed a backdoor for SBF that allowed him to funnel funds from FTX clients to Alameda. SBF has previously denied the existence of such a backdoor and points out that he doesn’t even know how to code. But the SEC says the backdoor was real.

Wang created and participated in the creation of the software code that allowed Alameda to embezzle funds from FTX clients. Ellison, in turn, used funds embezzled from FTX clients for Alameda’s business activity. And Bankman-Fried has used those client funds to make undisclosed venture capital investments, lavish real estate purchases and major political donations.

Many news outlets described what happened to FTX in the days leading up to its downfall as a “race to the bank.” And while that’s partially true, it obscures the real reason why FTX crashed. In fact, rival crypto exchange Binance, led by Changpeng “CZ” Zhao, bought a large stake in FTX in 2019. When CZ and SBF had a falling out, FTX bought out CZ’s stake in the company with around $2 billion native to FTX. token, known as FTT. CZ then decided to cash in his play money, but FTX could not provide the monetary value of the worthless token, causing the first dominoes to flip.

Many people are angry with CZ for this decision, including former FTX spokesperson Kevin O’Leary, who was paid $15 million to promote FTX. But CZ wasn’t doing anything illegal by asking to cash in his chips. CZ was simply calling SBF’s bluff, despite the fact that CZ is sitting on his own house of cards that could crumble at any moment. Binance’s token is currently the third-largest floating-price crypto token in existence behind Bitcoin and Ethereum.

But the SEC complaint gives even more insight into what SBF allegedly did with the FTT token over the three years of its existence.

Beyond his “line of credit” with FTX, Ellison, under the guidance of Bankman-Fried, caused Alameda to borrow billions of dollars from third-party lenders. These loans were largely collateralized by Alameda’s holdings of FTT, an illiquid crypto asset security issued by FTX and provided to Alameda for free. Ellison, acting under the direction of Bankman-Fried, engaged in automated purchases of FTT tokens on various platforms in order to increase the price of those tokens and inflate the value of Alameda’s collateral, which allowed Alameda to borrow even more money from outside lenders at increased risk to the lenders and to FTX investors and customers, all under the program.

Did you understand the part that says “under the direction of Bankman-Fried”? This is the kind of language that is written when one side talks to prosecutors and the other side is only trying to win in the court of public opinion.

Amazingly, the SEC alleges that SBF was so bad at trading with Alameda, his bad bets immediately caught up with him when the market turned sour.

When crypto asset prices plummeted in May 2022, Alameda lenders demanded the repayment of billions of dollars in loans. Despite the fact that Alameda had, by this point, already taken billions of dollars in assets from FTX clients, it was unable to meet its loan obligations. Bankman-Fried, to the knowledge of the defendants, ordered FTX to divert additional billions of client assets to Alameda to ensure that Alameda maintained its lending relationships and that money could continue to flow from lenders and other investors. Ellison then used FTX client assets to pay Alameda’s debts.

And then it all fell apart, according to the SEC:

Even in November 2022, faced with billions of dollars in customer withdrawal requests that FTX could not satisfy, Bankman-Fried and Ellison, to Wang’s knowledge, misled investors that they needed money to fill a gap. multi-billion dollar hole. This brazen, multi-year program finally came to an end when FTX, Alameda and their tangled network of affiliated entities filed for bankruptcy on November 11, 2022.

Ellison’s bail was set at an extremely low $250,000, according to CoinDesk, though it’s unclear if Wang’s bail was set at the same price. Curiously, the unsealed plea agreement notes that if Ellison is not a citizen of the United States, she may have to be deported after serving time. It is believed that Ellison was born in the United States, but CoinDesk speculates that she may have renounced her US citizenship in order to avoid paying taxes, something cryptocurrency traders who move overseas sometimes do.

Cryptocurrency is inherently a Ponzi scheme that powerful, connected people use to extract wealth from people who throw their few hundred dollars at a lottery ticket, hoping to get rich. But the game is rigged against them, and the house always wins. Except when you’re a stupid fucking casino manager. Former President Donald Trump lost money trying to run casinos. And it looks like SBF will probably go down in history alongside Trump and all the other frauds of this era. It might take a while before they are all exposed.