One of the curiosities about Sam Bankman-Fried’s media tour ahead of his arrest was the degree to which the FTX founder was putting the blame on his former girlfriend, Caroline Ellison, who became chief executive of the affiliated fund Alameda Research.
For instance, Bankman-Fried was asked on a Twitter spaces held by the account Unusual Whales about FTX deposits that went to Alameda. “So take this with a little bit of a grain of salt, but I believe it’s the case that, that up until as of, you know, a year and a half ago, and certainly as of like two and a half years ago when I was transitioning out of running Alameda, that as of those times, I believe that it was the case that this number was massively smaller than it ended up by, you know, late 2022,” said Bankman-Fried.
What new charges made by the Department of Justice and Securities and Exchange Commission make clear is that Ellison, as well as fellow FTX co-founder Gary Wang, are now cooperating against Bankman-Fried. Both pleaded guilty to federal charges including wire fraud, securities fraud and commodities fraud.
Both U.S. Attorney Damian Williams of the Southern District of New York, as well as the SEC press release, note the cooperation of the pair. And the SEC complaint ties Bankman-Fried to some of the most damning allegations with their assistance.
For instance, on the idea that there was a backdoor that allowed Bankman-Fried to take customer funds — the new complaint says that Wang created the software code which Bankman-Fried used. Bankman-Fried had maintained in media interviews that he was not capable of creating such code.
Bankman-Fried and Wang, with Ellison’s knowledge and consent, had exempted Alameda from the risk mitigation measures in place on the FTX platform, the SEC complaint says. Ellison, acting at 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 external lenders, the SEC said.
With the knowledge of Wang and Ellison, Bankman-Fried directed FTX to divert billions more in customer assets to Alameda to ensure that Alameda maintained its lending relationships after crypto assets began plummeting in May 2022, the SEC added.
The SEC complaint says that through the summer of 2022, Wang and Ellison knew that Bankman-Fried continued to misappropriate FTX customer funds, which he then used for more venture investments as well as more loans to himself and others, including Wang.
The SEC complaint suggests they’re looking for further witnesses to turn against Bankman-Fried. “Other individuals were both aware of and participated in some aspects of the fraud scheme described herein,” the SEC says in a footnote.
“If you participated in misconduct at FTX or Alameda, now is the time to get ahead of it,” Williams said.