The investigation into the bankruptcy of Sam Bankman-Fried's cryptocurrency empire is ramping up.
The US regulators have just recorded two major victories in quick succession.
They have announced that they have attained the cooperation of two associates of Bankman-Fried, which should enable them to build their case against the 30-year-old former trader.
Zixiao (Gary) Wang, 29, former FTX co-founder and Chief Technology Officer, and Caroline Ellison, 28, the former CEO of Alameda Research, the hedge fund founded by Bankman-Fried, have pleaded guilty to federal charges in the Southern District of New York, according to court documents published on December 21.
Both of them agreed to provide the authorities all the information at their disposal to further assist in the investigation.
"The Office of the United States Attorney for the Southern District of New York will accept a guilty plea from Caroline Ellison," the federal prosecutors announced.
“As I said last week, this investigation is very much ongoing,” U.S. Attorney Damian Williams said in a prerecorded message.
Appearance in Manhattan Federal Court
But the biggest win for regulators, so far, is that Bankman-Fried has waived his challenge to his extradition to the United States, meaning that he will have to face the charges against him in person. He lives in the Bahamas, where FTX is also headquartered.
The former trader made an unexpected about-face a few days ago regarding his extradition. He landed in New York on the evening of December 21. He is due to make his first appearance in the federal court in Manhattan on December 22. More than likely, he will ask to be released on bail.
Federal prosecutors want to push their advantage. They are putting pressure on other employees of FTX and Alameda Research, the two flagship companies of the Bankman-Fried empire, to turn against their former boss.
"Let me reiterate a call I made last week," U.S. Attorney Damian Williams said in a prerecorded message. "If you participated in misconduct at FTX or Alameda, now is the time to get ahead of it. We are moving quickly and our patience is not eternal."
FTX's downfall started on November 6, when Changpeng Zhao, rival of Bankman-Fried and founder of the Binance cryptocurrency exchange, announced that his group would sell its FTT. The reason given by Zhao was that he had doubts about the balance sheet of Alameda.
FTT was the cryptocurrency issued by FTX.
The announcement, made on Twitter, caused a run on FTX by its customers, attempting to withdraw their funds in the form of cryptocurrencies. SBF said, on November 7, that the assets were "fine," but it was too late.
On November 8, he announced that he had reached an agreement with Zhao to sell him his empire. But the next day, Zhao backtracked and abandoned the deal because the financial situation of FTX and Alameda was more precarious than expected.
SBF tried to find another savior, but ended up filing for Chapter 11 bankruptcy on November 11. He resigned and was replaced by John Ray, the liquidator of the energy broker Enron.
Since then, there have been startling revelations about the Bankman-Fried regime, which have been piling up from Ray, and especially from regulators who are trying to determine what caused the bankruptcy of FTX, which was still valued at $32 billion in February, in a matter of days.
On December 13, U.S. regulators -- the Department of Justice, the SEC and the Commodity Futures Trading Commission or CFTC -- filed a series of criminal and civil charges against the former trader.
Justice Department prosecutors filed eight criminal counts against Bankman-Fried, according to the indictment unsealed on December 13. Four of the charges, including conspiracy to commit wire fraud on customers and lenders and wire fraud, indicate that the alleged acts began as early as 2019. This is the year FTX was founded.
"Bankman-Fried was orchestrating a massive, yearslong fraud, diverting billions of dollars of the trading platform’s customer funds for his own personal benefit and to help grow his crypto empire,” the SEC alleges in its civil complaint.
He used customer funds to "make undisclosed venture investments, lavish real estate purchases, and large political donations,” the complaint said.
Mark Cohen, an attorney for Bankman-Fried, said his client "is reviewing the charges with his legal team and considering all of his legal options.”
Bankman-Fried was arrested in the Bahamas, where he was living, on December 12 at the request of US authorities. Initially Bankman-Fried was considering fighting his extradition. A hearing to that effect had been set for February 8, but he later changed his mind.
The fall of FTX has already caused $9 billion in losses to customers of the cryptocurrency exchange, according to Chainalysis. But this number doesn't take into account potential losses for people who deposited they funds with the exchange.