Two Executives in Sam Bankman-Fried’s Crypto Empire Plead Guilty to Fraud

Two former top executives of Sam Bankman-Fried’s crypto trading empire have pleaded guilty to federal criminal fraud charges and are cooperating in the case against the disgraced crypto entrepreneur, the U.S. attorney for the Southern District of New York said on Wednesday night.

The two are Caroline Ellison, who was the chief executive of the cryptocurrency trading company Alameda Research, and Gary Wang, a founder of the FTX crypto exchange. They were key lieutenants in Mr. Bankman-Fried’s vast business empire, which rested primarily on FTX and Alameda.

The Securities and Exchange Commission also filed civil fraud charges against Ms. Ellison and Mr. Wang on Wednesday. The S.E.C. said that Ms. Ellison had misused FTX customer deposits to fund Alameda’s trading activity and that Mr. Wang had created software that allowed that diversion of funds to take place. The S.E.C. case builds on civil charges filed against Mr. Bankman-Fried this month.

The guilty pleas and cooperation agreements are a major advance in the criminal fraud case against Mr. Bankman-Fried, who is in U.S. custody after agreeing to be extradited from the Bahamas earlier on Wednesday. The combination of criminal and civil charges against the former top executives further reinforces the claims made by federal authorities that Mr. Bankman-Fried oversaw a sweeping fraudulent operation almost from its inception in 2019.

Federal prosecutors and regulators in the United States have said Mr. Bankman-Fried carried out a fraud that diverted billions in customer money for other uses, including buying real estate in the Bahamas, trading crypto at Alameda, making campaign donations and investing in other crypto companies. Prosecutors contend he defrauded customers, investors and lenders to his crypto trading firm, which was one of the biggest in the world before it collapsed in bankruptcy last month.

The guilty pleas by Ms. Ellison and Mr. Wang could push other former executives to cooperate with the authorities.

The U.S. attorney, Damian Williams, reiterated in a statement on Wednesday night a point he made last week when the criminal charges against Mr. Bankman-Fried were announced. “If you participated in misconduct at FTX or Alameda, now is the time to get ahead of it,” Mr. Williams said. “We are moving quickly and our patience is not eternal.”

During a two-week media blitz before his arrest on Dec. 12, Mr. Bankman-Fried claimed he had done nothing wrong and had not intended to defraud anyone. He also suggested that he wasn’t fully aware of the trading irregularities at Alameda, a firm he co-founded in 2017.

Mr. Williams, in his statement, also said Mr. Bankman-Fried was in F.B.I. custody and being flown back to the United States, and would be presented before a judge as soon as possible. He is expected to be taken into Federal District Court in Manhattan as early as Thursday.

Lawyers for Ms. Ellison declined to comment. Ilan Graff, a lawyer for Mr. Wang, said, “Gary has accepted responsibility for his actions and takes seriously his obligations as a cooperating witness.”

A spokesman for Mr. Bankman-Fried declined to comment.

In its complaint, the S.E.C. said Ms. Ellison, under direction from Mr. Bankman-Fried, had manipulated the price of a digital currency that FTX created, called FTT, by buying large quantities of the crypto token to prop up its price.

Alameda was one of the major firms that was trading FTT and had used the crypto token as collateral for loans it got from other big crypto firms to fund its trading.

Sanjay Wadhwa, deputy director of the S.E.C.’s Division of Enforcement, said 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.”

This is a developing story. Check back for updates.