FTX’s Gary Wang avoids jail, gifts feds fraud detection tool

The co-founder of the FTX digital asset exchange won’t be going to jail after supplying the U.S. federal government with tools to identify fraudulent transactions in both traditional securities and cryptocurrencies.

On November 20, FTX co-founder/former CTO Zixiao ‘Gary’ Wang was sentenced to time served and three years of supervised release for his role in the massive fraud that led to FTX’s collapse in November 2022. Shortly after that collapse, Wang was charged with conspiracy to commit fraud, wire fraud, conspiracy to commit commodities fraud and conspiracy to commit securities fraud.

Wang quickly pleaded guilty and agreed to cooperate with prosecutors from the U.S. Attorney’s Office of the Southern District of New York (SDNY). Wang was the first FTX criminal defendant to cooperate, leading prosecutors to argue for leniency from U.S. District Judge Lewis Kaplan in a pre-sentencing memo earlier this month.

On November 20, Kaplan agreed, telling Wang he was “entitled to a world of credit” due to “the extent of your cooperation.” (More on this below). Kaplan also noted that Wang didn’t become aware of the extent of FTX’s malfeasance until much later than some of his former colleagues.

Wang, who told Kaplan he’d taken “the easy path, the cowardly path, instead of doing the right thing,” was the fifth and final FTX exec to be sentenced by Kaplan in the wake of the exchange’s demise. Former director of engineering Nishad Singh, who also cooperated with prosecutors, received a similar time-served sentence on October 30.

Caroline Ellison, the final CEO of FTX’s affiliated market-maker Alameda Research, began serving her two-year prison sentence earlier this month. Like Singh and Wang, Ellison cooperated with prosecutors but Kaplan said her involvement in the fraud was too great to allow her a ‘get out of jail free’ card.

Former FTX Digital Markets CEO Ryan Salame began serving his 90-month sentence last month after a strange sequence of events that included a guilty plea, an attempt to withdraw that plea and some harsh words from Kaplan as to why Salame signed papers admitting his guilt only to loudly proclaim his innocence on social media while awaiting his sentence.

And of course, FTX founder Sam Bankman-Fried (SBF) is doing 25 years in federal prison after mounting an ill-advised defense in which he attempted to deflect blame and diminish the impact of his fraud.

Indeed, SBF’s defense was judged so inept it was puzzling to read that Sean ‘Diddy’ Combs recently hired one of SBF’s trial attorneys to assist his defense of multiple sex trafficking charges. Combs and SBF are currently both housed at Brooklyn’s Metropolitan Detention Center.

Clearly, the three execs who cooperated with the feds fared far better than the pair who tried to downplay the severity of their crimes. With SBF biographer Michael Lewis having recently signed a deal to bring his Going Infinite book to the big screen—and Lena Dunham set to write the screenplay—we’ll just have to wait to see how Hollywood sorts this quintet into heroes and villains.

Tools of the troubled trade

Getting back to Wang’s cooperation with the SDNY, the prosecutors suggested his assistance might lead to a bevy of future prosecutions against those engaging in the kind of transactional chicanery that brought FTX to ruin.

The SDNY praised Wang’s willingness to expose SBF’s lies about how much the latter understood of the technical ‘backdoors’ that Wang had built between FTX and Alameda. These backdoors allowed Alameda to plunder billions from FTX customer accounts to cover losses stemming from Alameda’s loss-making token trades.

But prosecutors said Wang put his “extraordinary computer programing skills” into building tools to detect “potential fraud in the stock and cryptocurrency markets.” The SDNY said Wang “has built an interface that the Government has begun using for detecting potential fraud by publicly traded companies.”

Wang is also building “a tool for detection of potential illegal activity in cryptocurrency markets,” something the SDNY says Wang will be able to finish “as part of his ongoing cooperation” now that he’s been spared jail time. Sadly, specifics of these tools were redacted from the filing but the SDNY appears excited at the opportunities the tools apparently can and will provide.

During Wang’s November 20 court appearance, Assistant U.S. Attorney Nicolas Roos told Kaplan the SDNY had some non-public charges it was preparing to file against unspecified companies based on information that would have been much easier to detect had Wang’s tools been available earlier.

Of course, there will be a new U.S. Attorney for the SDNY as of January, with president-elect Donald Trump having already named former Securities and Exchange Commission (SEC) chief Jay Clayton to head up the Department of Justice’s (DOJ) primary eye on America’s financial heart. Clayton had a mixed stance toward digital assets during his SEC tenure but appears to have taken a far more favorable approach since leaving government in December 2020.

Scott Hartman, the SDNY’s co-chief of securities and commodities division, said last week that the office would likely scale back its ‘crypto’ investigations to allow it to allocate its finite resources toward items of more importance to Trump, such as illegal immigration.

Figures. Just as the good guys get the tools they need to catch crypto crooks in the act, the higher-ups call off the dogs.

Give us back our sh*tcoins

Despite the conclusion of the five execs’ legal proceedings, the SDNY isn’t quite finished with FTX. On November 12, the SDNY filed a civil forfeiture complaint seeking to reclaim millions of dollars’ worth of digital assets currently held in accounts on the Binance exchange.

The funds are linked to the “at least $40 million” in bribes that SBF directed to be paid to “one or more Chinese government officials” in November 2021. The bribes were intended to “unfreeze certain Alameda trading accounts [on two China-based exchanges] containing over $1 billion in cryptocurrency, which had been frozen by Chinese authorities.”

The digital wallets that received this hefty bribe—made with (surprise!) the Tether (USDT) stablecoin, the common currency of crypto criminality—made several transfers to other wallets before depositing most of the funds to Binance accounts in December 2023.

Some of the funds in the Binance account were converted to other tokens, while other funds were later withdrawn to private wallets. As of December 2023, the combination of Avalanche (AVAX), Cardano (ADA), Internet Computer (IC), Ripple (XRP), and Solana (SOL) still in the account was worth around $8.6 million, but their fiat value had nearly doubled by the time the complaint was filed.

SBF was charged with violating the Foreign Corrupt Practices Act (FCPA) in a superseding indictment, but these charges were dropped last December following his conviction on all other charges in November 2023.

We here at CoinGeek are going to miss our periodic updates on the rogues’ gallery that was FTX’s executive branch. Good thing the sector appears to have learned little from the fall of their fuzzy-headed Icarus and will supply no end of tawdry tales to keep us entertained.

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