To: Interested Parties
From: Dennis Kelleher, President and CEO
Cc: Media Contact: Anton Becker, Dir. of Communications, abecker@bettermarkets.org
Date: November 19, 2024
Re: SBF/FTX Related Sentencing of Gary Wang on Wednesday, November 20th
This Wednesday, November 20, 2024, Gary Wang, who was FTX’s chief technical officer (and 17% equity owner), Alameda’s co-founder (who owned 10% of the company), and author of the code that allowed FTX to steal billions from its customers, will be sentenced for his part in one of the largest criminal frauds in financial history. Wang pled guilty to conspiracy to commit wire fraud, wire fraud on customers, conspiracy to commit securities fraud, and conspiracy to commit commodities fraud. He also admitted to participating in FTX’s spectacular collapse by creating FTX’s software code that allowed Alameda “special privileges” on the FTX platform that gave Alameda the “ability to withdraw funds or transfer funds regardless of what [Alameda] had in its account, even if that would cause the account balance to become negative,” thus allowing it to steal FTX customer funds.
Nevertheless, because of his cooperation, Wang’s lawyers and the government argue that Wang should get what is effectively no punishment at all. While Wang appears to have cooperated extensively and continues to cooperate in meaningful and important ways, no criminal should be handed a “get-out-of-jail-free” card. That would create perverse incentives causing future criminals to continue their criminal activities hoping they won’t get caught but also planning, if they do get caught, to race to the prosecutor’s office to be the first one in the door so that he or she can get the lightest sentence, if any at all. Punishment and deterrence are important, and those goals would best be served here by sentencing Wang to a year in prison, among other sanctions.
No amount of rhetorical whitewashing by the government should obscure the fact that, by late 2021 or early 2022 (roughly a year before FTX collapsed and the criminal activity was exposed), Wang was a knowing and critical participant in the criminal enterprise, could have stopped it, and could have prevented the loss of billions of dollars. Indeed, the government admits that Wang could have prevented the theft of at least $7 billion in stolen customer funds and prevented investors from losing billions of dollars more. Instead, Wang decided to knowingly, willingly, and fully participate in the ongoing crimes.
Wang could have – and should have – come forward a year or 90, 60, or more days before FTX’s collapse. He could have been a whistleblower. He could have acted in a way that provided him with a strong basis for arguing no jail time, but he chose not to do that. In fact, he chose to keep committing crimes knowing they were getting worse month-by-month and that billions of dollars more were being stolen from customers month-by-month. He chose crime until he knew he was going to be caught. Only then did he choose to cooperate and be contrite, only after it was clear the end was near and the collapse was all but inevitable. He made the tactical choice at that time to race to the prosecutor’s office to cooperate and tee himself up to get a better deal by claiming cooperation. That cannot, however, erase his prior knowing criminal conduct or the billions of dollars that were stolen while he remained silent.
Background.
In addition to Wang, four other top FTX executives have already been sentenced for their crimes:
- Sam Bankman-Fried (“SBF”), who was sentenced to 25 years in prison;
- Caroline Ellison, who was sentenced to two years after extensively cooperating with authorities, but was not involved in the effort to subvert democracy through illegal political donations;
- Ryan Salame, who was sentenced to 7.5 years of prison after refusing to cooperate with authorities and who made illegal political donations on behalf of SBF and FTX; and
- Nishad Singh, who also made illegal political donations on behalf of SBF and FTX in addition to assisting in FTX’s theft but was only sentenced to time served after extensive cooperation with the government.
Wang was a close associate of convicted crypto kingpin SBF, who he met in high school at a summer math camp and went to college with at MIT. Like his FTX co-defendants before him, Wang is facing many years in prison for his crimes under applicable sentencing guidelines. But Wang is unlikely to spend much time behind bars after the government filed a sentencing letter asking the Court to set aside those sentencing guidelines and highlighting Wang’s “outstanding cooperation” and “substantial assistance in the investigation of wrongdoing at FTX, the prosecution and trial of [SBF], and in other matters.”
According to the government’s submission, Wang’s “testimony was truthful and was corroborated by other evidence.” Moreover, “[f]rom his first meeting, Wang took responsibility for his involvement in the fraud on FTX’s customers.” And, the government wrote, “[w]hile there were several parts of the fraud that Wang was not involved in, he immediately took responsibility for his conduct and pled guilty for his involvement in crimes.” In addition, Wang, the government wrote, might in the future make meaningful contributions to society by developing “a tool for detection of potentially illegal activity in cryptocurrency markets.” “Wang’s willingness to use his skills proactively, to help detect other criminal activity in financial markets, distinguishes his cooperation,” wrote the government.
In Wang’s own sentencing memorandum filed by his attorneys, Wang’s attorneys argue that he, “was the least involved of any defendant in the offense conduct as reflected in both the trial evidence and the limited counts to which he pled.” As such Wang’s attorneys are arguing for a “non-custodial sentence,” i.e., no prison time and only a period of supervised release due to his assistance to the government because “a custodial sentence would disrupt his ongoing cooperation . . . [and] create an unwarranted sentencing disparity between [Wang] and Singh, as well as similarly situated cooperating witnesses in other cases, risk deterring future cooperation, and otherwise great than necessary to satisfy the statutory sentencing purposes.” And, his attorneys argued, “[u]nlike Singh, [Wang] did not engage in money laundering or participate in the straw donor scheme.”
According to his attorneys, Wang was the “only cooperator who had been fully debriefed before [SBF]’s arrest and shared information that contributed to that arrest being executed safely and smoothly. [Wang] was the original source of prosecutors’ understand of the FTX code, which understanding Singh only later corroborated.” And the government notes that Wang “was the first FTX employee, first member of the conspiracy, and first trial witness to be interviewed by the Government” and “[a]t that first meeting, and multiple other meetings in November and December 2022, Wang walked the Government through FTX’s code, with a particular focus on the code portions that permitted Alameda to have special privileges on FTX.”
While that is undoubtedly true, the question remains whether Wang’s cooperation should result in no meaningful sentence or punishment at all for his very significant and consequential wrongdoing. That included wire fraud, commodities fraud, and securities fraud over an extended periord of time. There were thousands of victims and billions of dollars stolen. While it is critically important for corporate insiders like Wang to come forward to help prosecutors unravel complex and often hidden financial crimes, and the earlier the better, they must nevertheless receive some meaningful punishment for their criminal conduct as well.
As with the other FTX executives who have already been sentenced, it must also be remembered that Wang was a major if not indispensable facilitator and contributor to the entire fraud. Wang faced choices at critical junctures during the criminal enterprise: do wrong or do right; break the law or not. Every time he choose to break the law. Yes, once the scheme blew up and the fraud was about to burst into public view, he rushed to cooperate, but he could have single-handedly stopped this fraud long before billions of dollars were lost, thousands of lenders and investors were defrauded, and tens of thousands of customers were ripped off. He chose not to, which resulted in, as the U.S. Attorney has said, “one of the largest financial frauds ever, resulting in billions of dollars in losses and thousands of affected victims.”
These circumstances raise a difficult balancing task: fairly punishing the individual criminal who has cooperated in a particular case while at the same time sending a strong message of deterrence to those thinking of breaking the law in the future. Because it is so difficult to detect corporate, financial, and while collar crimes, which largely go undiscovered and unpunished, deterrence is of particular importance. That’s why the balance in these cases should tip toward harsher punishments and why monetary penalties that leave the white-collar criminals penniless and sentences that put the wrongdoer behind bars are essential.
There is another key issue at stake in corporate, financial, and while collar cases. When there are so many other non-white-collar criminals convicted of much less significant lawbreaking who are spending years if not decades in prisons across America, how can a justice system worthy of its name ever be viewed as fair if there is no prison time for white-collar criminals. Equal justice under law is at stake – as well as American’s faith, trust, and confidence in the justice system – in white collar cases and that should remain uppermost in mind when determining sentencing.
Thus, the key question at the heart of this sentencing is: Does a knowing and significant participant in a massive, years-long, historically large criminal financial fraud deserve no jail time due to his cooperation and contrition, even accepting it as sincere? Considering all the issues and giving full weight to his cooperation, the answer should be no. Notwithstanding Singh’s too light sentence handed down last month, Wang should be sentenced to at least a year in prison followed by three years of supervised release.
The Parties’ Positions.
Wang’s attorneys have filed an extensive sentencing memorandum detailing his life story and portraying him as “quiet and compassionate.” Attempting to distinguish Wang’s participation in the massive fraud from his co-defendants’, Wang’s attorneys also argued that he “did not have full visibility on the crimes the Government was investigating. He had not known Alameda Research was taking FTX customer money until after the scheme was well underway. He had not lied to lenders. He had not falsified FTX revenues. He could not speak to the exotic web of financial transactions that resulted in his co-defendants’ pleas to money laundering and campaign finance offenses. He had not received bonuses or sought compensation beyond his $200,000 annual salary.”
Of course, this ignores Wang’s substantial equity positions in both Alameda and FTX, which were valued in the stratosphere due to the criminal activity enabled by Wang’s coding that permitted Alameda to steal FTX’s customer funds. Moreover, Wang’s lawyers admit – as they must – that Wang learned Alameda was “taking customer money,” albeit after the “scheme was well underway.” At that point and at every point thereafter prior to FTX blowing up, Wang remained silent. He did not stop the criminal activity. He did not report the criminal activity. He was not a whistleblower. In fact, he continued doing exactly what he had been doing: enabling and participating in the criminal activity that was making him wildly, unimaginably rich (albeit only on paper as of that time).
As the government stated, Wang’s culpability includes “putting in place computer code” that was “used by [SBF] to misappropriate customer money” including special coded privileges that gave Alameda the “ability to withdraw funds or transfer funds regardless of what [Alameda] had in its account, even if that would cause the account balance to become negative.” And Wang was aware of “a very large line of credit which allowed [Alameda] to have open orders and open positions, essentially without limit.” Indeed, Wang told SBF that Wang could set the line of credit to $65 billion, which Wang did in fact do when SBF instructed him to. As the government’s submission argues, Wang could have disabled these special privileges, but did not do so. Put differently, Wang knowingly and willingly enabled and participated in the criminal activity.
No amount of rhetorical whitewashing by the government can obscure the fact that Wang was a knowing and critical criminal participant in this crime, that he could have stopped it, and that he could have prevented the loss of billions of dollars. For example, the government stated that, even after Wang learned that Alameda was withdrawing customer money, “he continued to operate the code in a way that he knew was incompatible with information provided to FTX investors.” Translation: Wang knew and did nothing about the fact that investors were being lied to and defrauded. The government also pointed out that by late 2021 or 2022, “[Wang] learned that Alameda had made use of approximately $3 billion in customer funds.” Translation: Wang knew and did nothing about FTX stealing $3 billion in customer funds. By June 2022, Wang knew $9.5 billion in customer funds had been taken by Alameda, and that by September 2022, Wang understood that “Alameda had used in excess of $10 billion in customer funds and would not be able to repay its debt.” Translation: Wang knew and did nothing about the theft of $10 billion in customer funds, and also knew and did nothing about the fact that Alameda was bankrupt and, therefore, FTX was likely going to fail as well, costing investors all their funds and the customers most if not all of their funds.
Thus, the government acknowledges that Wang could have prevented the theft of at least $7 billion in stolen customer funds (the difference between the $3 billion he learned of in late 2021 or early 2022 and the $10 billion that had been stolen by the time FTX collapsed) and prevented investors from losing billions of dollars more due to lies and fraud.
Still, the government’s recommendation is for Wang to receive a sentence of time served, highlighting his good works post-FTX in creating an investigative tool for regulators to detect wrongdoing in the broader securities markets and working on another tool that will help detect wrongdoing specifically in the crypto markets.
Wang Did Not Accumulate the Same Wealth As His Co-Defendants.
It should also be noted that unlike his co-defendants, Wang did not accumulate huge amounts of money. Instead, as his attorneys put it, “[h]e received none of the lavish bonuses showered on his co-defendants and never sought to live beyond his $200,000 annual salary.” And as the government noted, “[i]n contrast to all of his co-defendants, Wang did not engage in significant personal spending: indeed, he is able to return some of his salary as forfeiture because he did not spend it all.” But this ignores the fact that Wang did have substantial equity positions in both Alameda and FTX and stood to benefit substantially from their valuations, which, for FTX alone, were as high as $32 billion dollars.
Wang’s Role.
Wang pled guilty to four charges, conspiracy to commit wire fraud, wire fraud on customers, conspiracy to commit securities fraud, and conspiracy to commit commodities fraud. But, unlike Singh, he was not involved in SBF conspiracy to commit money laundering and conspiracy to violate federal campaign finances laws by funneling money through illegal straw donors that were far in excess of allowed limits, including hundreds of donations intended to manipulate crypto regulation and legislation. That, however, only highlights how inappropriately light Singh’s sentence was.
The Harm.
The harm to customers was immense, notwithstanding the claim that FTX customers will eventually recover much if not all of their losses (at least as of the time FTX declared bankruptcy). Some FTX customers certainly liquidated considerable losses as the revelations about FTX’s precarious financial condition began to emerge and the collapse of FTX approached. Moreover, as we detailed in our previous memo regarding the sentencing of SBF, claims regarding potential customer recovery paint an incomplete picture.
As the Government in its sentencing memo correctly points out, however, SBF’s victims’ potentially recovering their money years later is no reason to reduce Wang’s sentence for his crimes:
“That some victims may receive some money back through FTX’s bankruptcy is of little comfort for those victims who needed the money in November 2022. The suffocating sense of dread and despair that victims felt when they could not withdraw their money, their shame and embarrassment, and the resulting damage to lives and businesses, cannot be undone through the bankruptcy . . . [a]nd even as victims are repaid, that is the result of extensive work in the bankruptcy process and criminal forfeiture, not the result of the defendant’s actions, which in many respects have been counterproductive.”
And just because the harm done is difficult to quantify, does not mean that it is not significant.
The Core Question.
Having served as a principal and knowing player in one of the most egregious financial frauds in history, does Wang deserve to avoid prison time altogether? He cooperated, yes. He has built an investigative tool that can be helpful to the government in uncovering wrongdoing in the markets and he is building another tool that can be helpful in detecting fraud in the crypto market. He is genuinely remorseful, yes. And he suffered public condemnation and harassment, yes.
But does that mean that any fraudster can victimize countless investors and then walk free as long as they come forward when the scheme collapses and becomes public, feel genuine remorse, and cooperate with officials? How could that approach possibly serve as an effective deterrent against wrongdoing? And what do you say to the thousands of customers, investors, and others who were victims of the criminal enterprise? That his cooperation and contrition somehow make up for all the damage they suffered as a result of a fraud that he was instrumental in facilitating?
Remember, the government acknowledges that by late 2021 or 2022:
“[Wang] learned that Alameda had made use of approximately $3 billion in customer funds.” By June 2022, Wang knew $9.5 billion in customer funds had been taken by Alameda. And by September 2022, Wang understood that “Alameda had used in excess of $10 billion in customer funds and would not be able to repay its debt.”
Wang could have – and should have – come forward a year or six months, three months, or any number of days before FTX’s collapse. He could have been a whistleblower. He could have acted in a way that provided him with a strong basis for arguing no jail time, but he chose not to do that. In fact, he chose to keep committing crimes knowing they were getting worse month-by-month and that billions of dollars more were being stolen from customers month-by-month. He chose crime until he knew he was going to be caught. Only then did he choose to cooperate and be contrite, only after it was clear the end was near and the collapse was all but inevitable. He made the rational choice at that time to race to the prosecutor’s office to cooperate and tee himself up to get a better deal by claiming cooperation. That cannot, however, erase his prior knowing criminal conduct or the billions of dollars that were stolen while he remained silent.
He should certainly receive a sentence that reflects his cooperation and assistance in creating financial tools for government use, but no jail time would violate the most basic notions of justice. As we have argued consistently, those who lead, direct, participate in, and help carry out serious, intentional, and damaging financial crimes must be held accountable and properly punished. Moreover, their sentences must send a clear message that will deter others from committing future violations of the law. That’s true for those who work at the largest banks on Wall Street as well as for those who, like Wang, participate in a large-scale fraud through a new and novel financial produce such as crypto.
The judge on Wednesday has a tough job balancing competing interests here. But the sentence should be at least one year in prison (given his enabling of the financial fraud); three years of supervised probation; disgorgement of every penny attributable to his activities related to FTX; and a fine of $1 million. That would be a punishment that reflects the gravity of the crime, gives due consideration for the cooperation, and sends a strong deterrent message. If a prison sentence is viewed as inappropriate in light of what is arguably a unique form of cooperation with a significant societal benefit, then he should be sentenced to supervised probation for at least five years, which should be revokable at any time if his cooperation isn’t as full, complete, or beneficial as is currently anticipated, in addition to the other penalties.
