FTX co-founder who cooperated against Bankman-Fried avoids prison time

MANHATTAN (CN) — A federal judge in New York City credited FTX co-founder Gary Wang’s speedy cooperation with federal prosecutors when he sentenced Wang to time served Wednesday morning. Wang had pleaded guilty to criminal charges in connection with his role in the cryptocurrency exchange platform’s theft of more than $8 billion in customer funds.

Wang, FTX’s chief technology officer, delivered key witness testimony across three days of Sam Bankman-Fried’s criminal fraud trial last year, detailing his role in what U.S. District Judge Lewis A. Kaplan described as one of the largest financial frauds in U.S. history.

Beyond time served, Kaplan ordered Wang to serve a three-year term of supervised release.

The U.S. Attorney’s Office for the Southern District of New York advised Kaplan of Wang’s “substantial assistance” with the Department of Justice, which brought criminal charges within a month of FTX’s bankruptcy, saw Bankman-Fried convicted at trial, and recovered hundreds of millions of dollars in assets for victims.

“Wang was the first of Bankman-Fried’s co-conspirators to begin cooperating with the government and the first cooperating witness to testify at Bankman-Fried’s trial and describe the fraud scheme,” the federal prosecutors wrote in a sentencing letter. “What is particularly notable about Wang’s cooperation in this case is that he decided to cooperate immediately, even though he was not involved in many aspects of the criminal enterprise, and there was little documentary evidence linking Wang to the frauds on FTX’s customers and investors.”

Represented by Ilan Graff from Fried, Frank, Harris, Shriver & Jacobsen, Wang requested a noncustodial sentence in light of his “whole-hearted cooperation that prosecutors have publicly recognized as having radically accelerated their work.”

Given a chance to speak at the sentencing hearing on Wednesday, Wang voiced contrition to FTX’s defrauded customers and investors. “I’m deeply sorry to all the people hurt by my actions,” he said. “There were so many things I could have done differently.”

Wang said he “took the cowardly path instead of doing the right thing. Nothing I do will ever be able to make up for it.”

Wang, who pleaded guilty to four felonies in December 2022, testified at trial that his Massachusetts Institute of Technology roommate Bankman-Fried ordered him and former FTX Engineering Director Nishad Singh in 2019 to implement an “allow negative” coding feature for Alameda Research’s FTX account.

The coding change allowed Bankman-Fried’s crypto hedge fund Alameda Research to maintain a negative balance on the cryptocurrency exchange that was at times greater than FTX’s revenue. When Alameda’s balance was in excess of FTX’s revenue, it was pulling from FTX customers’ deposits, he explained.

Wang said that Bankman-Fried had also authorized Alameda a $1 billion line of credit on FTX, which was later increased to a $65 billion line of credit despite his public statements to the contrary on the relationship between the two firms.

The line of credit granted Alameda incomparable privileges to withdraw and transfer funds on FTX “essentially without any limits,” Wang said at trial.

Only about a dozen other FTX customers had lines of credit greater than $1 million, he testified.

Wang also testified that Bankman-Fried was aware FTX did not have enough assets to satisfy its customers’ withdrawals due to an $8 billion shortfall when he tweeted reassurances that “FTX is fine. Assets are fine,” in a since-deleted post.

Two other former executives from FTX and Alameda — Alameda co-CEO Caroline Ellison and Singh — also pleaded guilty to criminal charges and testified as key prosecution witnesses after signing cooperation agreements.

Prior to the bankruptcy and collapse of FTX, Bankman-Fried had been lauded as one of the most prominent evangelists of the philanthropic social philosophy known as “effective altruism,” which promotes prioritizing donations to fund projects that will have the largest impact on the greatest number of people.

U.S. Attorney for the Southern District of New York Damian Williams repeatedly called Bankman-Fried’s crime “one of the largest financial frauds in history.”

He pleaded not guilty but was convicted by a federal jury on all counts in November 2023.

The seven counts charged Bankman-Fried with illegally conspiring to defraud FTX’s customers and investors and Alameda’s lenders through false statements, embezzlement and directing false balance sheets.

He was sentenced to 25 years in prison, which is he currently serving at the Metropolitan Detention Center in Brooklyn pending his appeal before the Second Circuit Court of Appeals.

Follow @jruss_jruss