Caroline Ellison and Gary Wang plead guilty over the FTX collapse
FTX has been described as “worse than Enron”. However, there have finally been repercussions. Caroline Ellison and Gary Wang have pled guilty over FTX’s collapse.
Caroline Ellison
Caroline Ellison has pled guilty to seven fraud-related charges. These include wire fraud and conspiracy to commit wire fraud in relation to FTX’s customers and FTX’s lenders, securities fraud, and conspiracy to commit commodities fraud, money laundering, and securities fraud in relation to FTX’s investors.
Caroline Ellison faces a maximum of 110 years in prison. The wire fraud offences carry a maximum 20 year sentence. There are also significant fines. For example, the wire fraud offence’s fines is the maximum of $250,000, or two times the gain from the crime, or two times the loss suffered by the victims.
The plea agreements are relatively short on specifics. They do not state the specific facts underlying the counts.
The customer-fraud related charges likely pertain to Caroline Ellison’s role in using customer fund’s to invest at Alameda Research. They are likely premised on the idea that Caroline Ellison knew that customer funds should not have been used for such investing.
The securities fraud charges likely pertain to her role in either presenting artificially positive information to investors, or in failing to correct misunderstandings. Given that VC funds seemingly did relatively little due diligence, this is likely based on inaccurate public statements that might have induced VC funds to invest.
The commodity fraud charge likely relates to FTT token and allegations that FTT was manipulated upwards and that this inflated Alameda’s collateral, thereby allowing it to borrow more.
Gary Wang
Gary Wang has pled guilty to four fraud related charges. These are wire fraud, conspiracy to commit wire fraud, and conspiracy to commit commodities fraud and securities fraud. His offences carry a maximum sentence of 50 years in prison.
The charges are likely premised on similar facts to those against Caroline Ellison. This includes the role in enabling client funds to go towards Alameda and in helping FTX raise capital from investors.
Implications?
What then does this mean for SBF and the crypto industry?
This does not bode well for SBF. SBF has denied the allegations. However, both Caroline Ellison and Gary Wang have agreed to cooperate with the authorities. Here, they will likely testify against SBF. This increases the chance of a guilty verdict. And, ultimately, since both Ellison and Wang pled guilty – but SBF does not – this will reflect badly on him at sentence.
This is good for the crypto industry. It shows that existing laws prohibit the misconduct at FTX. This suggests that additional punitive regulations might be less necessary. Indeed, fraud is fraud whether it is in traditional securities or in crypto.