End Of SBF? Ellison, Wang Plead Guilty To SEC's Charge Of Defrauding FTX Investors

In a parallel move to the Southern District of New York (SDNY), the U.S. Securities and Exchange Commission (SEC) charged former Alameda Research CEO Caroline Ellison and FTX co-founder Gary Wang of defrauding FTX investors.

The legal upshot of the controversial collapse of the centralized crypto derivatives exchange FTX took a surprising twist Wednesday night after the Justice Department and the SEC announced charges against Ellison and Wang, two of the members of Sam Bankman-Fried's inner circle. The SEC alleged that both played a part in manipulating the price of the native FTX token FTT and defrauded customers.

Wang and Ellison were charged by the SEC "for their roles in a multiyear scheme to defraud equity investors in FTX."

The SEC complaint alleged that with Bankman-Fried and Ellison's scheme of manipulating the FTT price, they inflated Alameda Research's FTT holdings, which overstated the value of collateral in the crypto trading firm's balance sheet and mislead investors about FTX's risk exposure.

"As part of their deception, we allege that Caroline Ellison and Sam Bankman-Fried schemed to manipulate the price of FTT, an exchange crypto security token that was integral to FTX, to prop up the value of their house of cards," the SEC said in a press release.

As for the FTX co-founder and director of engineering Wang, the SEC alleged that he developed a software code for the FTX that enabled Alameda to divert FTX customers' funds.

"We further allege that Ms. Ellison and Mr. Wang played an active role in a scheme to misuse FTX customer assets to prop up Alameda and to post collateral for margin trading. When FTT and the rest of the house of cards collapsed, Mr. Bankman-Fried, Ms. Ellison, and Mr. Wang left investors holding the bag," the SEC stated.

"Gary has accepted responsibility for his actions and takes seriously his obligations as a cooperating witness," Wang's lawyer Ilan Graff said in a statement seen by Reuters.

The SEC announcement happened the same day when the SDNY announced that both Ellison and Wang pleaded guilty to federal criminal fraud charges and are currently cooperating in the case against Bankman-Fried.

In the SEC press release, the regulator confirmed that both Bankman-Fried's lieutenants have been cooperating with the agency concerning the allegations.

With members of Bankman-Fried's inner circle cooperating with government authorities, many speculate that their decision could spell the end for the once-golden boy of crypto as they rat him out to save themselves or at least get leniency.