Sam Bankman-Fried

Sam Bankman-Fried, the founder of Alameda Research and FTX, is no stranger to making headlines. Recently, Bankman-Fried has been in the news for his legal battle with the United States Securities and Exchange Commission (SEC). On January 3rd, he pleaded not guilty to federal charges of fraud and money laundering and faces a trial set for October. If convicted, he could face up to 115 years in prison.

But he’s not the only one on the hook. There are several other players from FTX and Alameda who are involved in the case and face their own criminal charges levied by the federal government, the SEC, and the Commodity Futures Trading Commission (CFTC).

Who Else Is Involved?

In a case this far-reaching, it’s no surprise that Sam Bankman-Fried didn’t act alone. Chief executives from Alameda Research and FTX have also been accused of criminal activities.

Former CEO of Alameda, Caroline Ellison, pleaded guilty in December of 2022 to seven charges, including conspiracy to commit wire fraud, securities fraud, and commodities fraud, as well as conspiracy to commit money laundering.

Former FTX co-founder and Chief Technology Officer Gary Wang is another accomplice of Bankman-Fried. He also pleaded guilty in December to criminal charges of conspiracy to commit wire fraud, wire fraud, conspiracy to commit commodities fraud, and conspiracy to commit securities fraud.

The two execs now face separate complaints brought against them by the SEC and CFTC. Ellison for “manipulating the price of FTT” and Wang for using “the misappropriated FTX customer funds for Alameda’s trading activity” by creating a software backdoor in FTX’s platform, which allowed Alameda to divert customer funds for its own trades. These charges could mean decades in prison for the execs.

This is a potent reminder of the importance of abiding by federal securities laws. For instance, any company that sells equity in the business must register with the SEC or meet an exemption. One of these exemptions is Rule 506(b), which requires investors partaking in a Reg D offering to meet certain investor criteria. Rule 506(b) states that issuers may sell to an unlimited number of accredited investors who meet these criteria. If your company seeks funding through a Reg D offering, our blog offers advice on how to find accredited investors and meet the SEC’s regulations.

What Next?

Both Caroline Ellison and Gary Wang have struck plea agreements with federal prosecutors that will likely diminish their sentences. Per the agreements, they will cooperate with authorities on the Bankman-Fried case, including serving as testifying witnesses if called to court. Ellison is also required to provide prosecutors with documents, records, and evidence that can be used in the case against Bankman-Fried, and to pay restitution.

As prosecutors review the facts and evidence presented in preparation for the Bankman-Fried trial, other accomplices may surface, and other charges may develop. The case has already had a massive impact on the cryptocurrency industry and will have major implications for cryptocurrency firms going forward, as it could set precedent for how similar cases are handled in the future.