Sam Bankman-Fried is expected to face eight criminal charges in New York | Sam Bankman Fried

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Sam Bankman-Fried is scheduled to appear in federal court in New York on Thursday to face eight criminal fraud charges related to his role in the collapse of crypto exchange FTX.

Bankman-Fried, 30, was transferred from the Bahamas to FBI custody Wednesday night and flown directly to an airport north of New York.

As US authorities transferred the former crypto king to New York, federal prosecutors revealed that Caroline Ellison, former CEO of crypto hedge fund firm Alameda Research, and Gary Wang, co-founder of FTX, pleaded guilty to criminal offenses related to the collapse.

The charges against the two men related to their role in the frauds that contributed to the collapse of FTX, U.S. Attorney Damian Williams said. Both Ms. Ellison and Mr. Wang have pleaded guilty to these charges and they are both cooperating with the Southern District of New York.

Ellison pleaded guilty to seven counts of defrauding clients and investors of FTX and Alameda, according to the agreement. The charges against her carry a maximum sentence of 110 years. As part of the plea deal, she was released on $250,000 bond.

Wang faces a similar set of charges. Ilan Graff, his attorney, said in a statement: Gary has accepted responsibility for his actions and takes his obligations as a cooperating witness seriously.

Williams said prosecutors plan to bring Bankman-Fried before a federal judge as soon as possible. If he is not released on bail in New York, he is likely to be locked up in the Brooklyn Metropolitan Detention Center where he will await trial.

Defense attorneys speculated that, with Bankman-Fried’s close associates pleading guilty to criminal charges and cooperating with investigators, he might have no choice but to do the same.

The criminal charges were coupled with civil charges from the U.S. Securities and Exchange Commission (SEC), accusing Ellison and Wang, as well as Bankman-Fried, of securities violations related to the group’s internal FTT cryptocurrency. .

According to the SEC complaint, between 2019 and 2022, Ellison, at the direction of Bankman-Frieds, furthered the scheme by manipulating the price of FTT, a crypto-security exchange token issued by FTX, by buying large quantities on the open market to support its price. FTT served as collateral for FTX’s undisclosed loans of its client assets to Alameda, which is owned by Wang and Bankman-Fried.

The complaint underscores the image given by multiple investigations of a close connection between Alameda, which had no outside investors, and FTX. The two companies shared bank accounts and key staff, mixed funds and were both under the direct control of Bankman-Fried, according to the complaint, despite the nominal authority of Ellison, his on-and-off girlfriend. .

FTX secretly advanced Alameda a virtually unlimited line of credit funded by the platforms’ customers, the SEC said, although it assured investors and depositors that it had sophisticated automated risk measures in place that would prevent any individual transaction to lose customer funds. The unlimited line of credit ensured that when Alameda’s bets paid off, they profited, but when they failed, it was FTX customers who ultimately lost.

The complaint also alleged that Wang created FTX software code that allowed Alameda to misappropriate FTX customer funds, and that Ellison used the misappropriated FTX customer funds for Alameda’s business activity. Bankman-Fried has previously dismissed claims of a secret backdoor in FTX software noting that he doesn’t even know how to code.

If the SEC complaint is upheld in court, it will likely have ramifications for the crypto industry beyond FTX. As part of its legal filing, the SEC argues that FTT, created by FTX with the promise that holders would share in the company’s profits, was offered and sold as an investment contract and therefore a security.

Publicly available information has led FTT holders to reasonably expect to share in future FTX growth and earnings, and to derive value appreciation from FTT, the SEC said, arguing that the crypto -currency thus violated US laws relating to the issuance of securities without a license. If the argument is accepted in court, it could have a significant impact on other cryptocurrencies, which thrive on regulatory uncertainty surrounding their legal status.

A separate civil case accuses Bankman-Fried of illegally using investors’ money to fund Alameda Research and buy property for him and his family.

Williams, who described the FTX collapse as one of the biggest financial frauds in American history, said the investigation is ongoing and again called on former FTX employees to come forward.

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