Today’s news that FTX co-founder Gary Wang has been sentenced to time served and supervised release for his role in the multi-billion dollar FTX fraud scheme means that only three of the five executives involved will serve any time in prison for their part in the theft.

Wang pleaded guilty to four counts — wire fraud, conspiracy to commit wire fraud, conspiracy to commit commodities fraud, and conspiracy to commit securities fraud — and was sentenced on Wednesday to time served and three years of supervised release on each.

The longest sentence was reserved for the mastermind of the theft, FTX founder and majority owner of Alameda Research Sam Bankman-Fried. He was sentenced to 25 years in prison.

The second-longest sentence was handed to FTX Digital Markets Chief Executive Ryan Salame, who was sentenced to seven and a half years for his role in using customer funds for influence-purchasing political donations. 

Read more: FTX sues Binance and CZ for ‘fraudulent tweets’ and $1.8B clawback

Caroline Ellison, the co-chief executive of Alameda Research and on-again-off-again romantic partner to Bankman-Fried, was sentenced to two years for charges of fraud and conspiracy, receiving substantial leniency thanks to her cooperation with prosecutors and law enforcement.

Wang, along with FTX’s Director of Engineering Nishad Singh, avoided prison time in their sentences, reflecting both their cooperation with the prosecution and their somewhat more peripheral role in the massive fraud. 

In total, this inner circle of FTX and Alameda executives have been sentenced to a total of 34.5 years in prison.

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At a glance

• Gary Wang described Alameda Research using the in-house FTT token as collateral for loans of FTX customer funds since nearly the beginning of FTX’s operations in 2019.
• Gary Wang descibed FTX granting Alameda Research its special privileges within months of the founding of FTX. Alameda’s accounts were running a negative balance as early as late 2019.
• Eventually, Alameda’s line of credit at FTX was set at $65 billion dollars, effectively giving them free access to all customer funds on the exchange.
• Caroline Ellison is expected to testify next Tuesday when the trial resumes.

The first week of Sam Bankman-Fried’s trial concluded with bombshell testimony from FTX co-founder and CTO Gary Wang, who said that the crypto exchange gave Alameda Research special access to borrow customer funds as early as late 2019 — just months after the founding of the exchange.

Department of Justice prosecutors highlighted the special privileges that Alameda Research had on FTX, which allegedly allowed the theft of $8 billion in customer deposits. Above all, this included the ability for many of Alameda’s accounts on FTX to run negative balances, and their immunity from liquidation on margin trades.

Wang testified that Alameda was not treated the same as other customers who traded on the FTX platform, including competing market-makers. This was later put in contrast with a July 31, 2019 post from Sam Bankman-Fried on X (formerly Twitter), explicitly claiming that Alameda’s “account is just like everyone else’s.”

That post wasn’t just contradicted by general practice at FTX, but by very specific circumstance. The same day — July 31, 2019, just a few months after FTX’s initial launch — Wang had implemented and activated special privileges for Alameda, in what was something like Sam Bankman-Fried’s original sin.

Sam Bankman-Fried asked Gary Wang for Alameda’s special privileges

Alameda’s privileges included a feature in FTX’s code known as “Allow Negative.” It did what it sounds like: let specific customers’ account balances go below zero. Wang testified that the feature was only ever activated for accounts associated with Alameda Research, and that it was never turned off until the two firms’ collapse. 

“Allow Negative” was in effect a back door in FTX’s code that allowed Alameda Research to extract $8 billion worth of customer funds from the exchange.

Bankman-Fried asked for this feature initially, according to Wang, because it was necessary for Alameda’s functions as a market maker, including its ability to redeem stablecoins and fund certain operations for the FTT token created by FTX. The defense, in its cross-examination of Wang, would later take pains to characterize these as legitimate reasons for Alameda’s unique privilege to effectively use customer funds at will.

Read more: Why Michael Lewis got Sam Bankman-Fried so wrong

But however legitimate Bankman-Fried’s initial rationale for the request, Alameda Research almost immediately began leveraging the “Allow Negative” privilege to, as Wang characterized it very simply, withdraw more money from FTX than their balance on the exchange. This included money that was transferred to other exchanges for trading purposes.

Under questioning from prosecutors, Wang spelled out that in effect, this meant that Alameda was making use of “money belonging to other customers of FTX.”

Alameda’s borrowing cap set to a ridiculous $65 billion

Wang also detailed the timeline by which Alameda’s negative balance was allowed to grow. Initially, Wang described Sam setting a notional limit on Alameda’s negative balance of no more than FTX’s own trading profits. But this lasted only months.

Wang said that at the “end of 2019 or early 2020” he calculated the balance in Alameda’s account and found that “it was negative by more than what FTX’s [cumulative] trading revenue was at the time.”

When he brought this discovery to Sam Bankman-Fried, Bankman-Fried asked if he had included the market value of Alameda’s holdings of the FTT token in the calculation. Wang said he had not, and adding them to the calculation made the deficit smaller. 

But FTT had been created by Bankman-Fried and Wang as a proxy for FTX equity, and distributed to Alameda at creation. This makes the loans somewhat akin to the related-party transactions that allowed Enron to hide huge debts in off-balance sheet partnerships.

Even after this allowance, Alameda seemingly continued to lose money at a staggering scale. Wang described Bankman-Fried asking him to increase Alameda’s line of credit again and again: “a few million, a few hundred million, then a billion.” 

That billion-dollar line of credit, Wang later said, was meant to be a number so absurdly large that it would never have to be changed again. But by late 2021, Wang says Alameda’s total debt to FTX customers had increased to $3 billion. Wang and Bankman-Fried eventually set Alameda’s borrowing cap at a truly absurd number: $65 billion dollars.

Read more: Sam Bankman-Fried’s college roommate testifies against him

Again and again, Wang detailed how Bankman-Fried had personally instructed himself or others in the commission of their confessed crimes. “[Sam] told me several times to make sure that Alameda’s account is never liquidated on FTX,” Wang summed it up at one point. 

Wang also described a series of budget meetings between himself, Sam Bankman-Fried, Nishad Singh, and Caroline Ellison, who as a group seemed solely responsible for tracking and reconciling roughly 20 Alameda accounts that had borrowed billions of dollars worth of FTX user funds.

In Wang’s telling, no accountant of any sort was present in these meetings, or played any role in keeping track of FTX user funds owed by Alameda.

Defense continues weak strategy

Wang also confirmed to prosecutors that he had pled guilty to multiple fraud counts, and that his cooperation and testimony might influence his eventual sentence. The defense attempted to use this to undermine Wang’s testimony, though not terribly effectively.

Sam Bankman-Fried’s attorneys were generally on the ropes again today. Like yesterday, defense lawyer Christian Everdell was reprimanded multiple times for repetition when he began Wang’s cross-examination at the end of the day. Judge Kaplan even accused him of simply killing time as the clock ticked towards the 2pm ET early dismissal, and Everdell seemed perfectly happy to clock out eight minutes early instead, so court adjourned at 1:52 with Wang’s cross-examination still in progress.

BlockFi CEO Zac Prince was expected to testify today, but Wang’s testimony ran longer than expected. That appears to have led to a shakeup in the expected order of witnesses: former Alameda Research co-CEO Caroline Ellison is now expected to testify on Tuesday.

Ellison’s past romantic entanglements with Bankman-Fried, and the defense’s apparent strategy of hanging Alameda’s failures on Ellison, mean it will be closely watched.

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FTX co-founder and former CTO Gary Wang is testifying against his childhood friend Sam Bankman-Fried today in court.

Wang’s testimony will be the first by a member of Bankman-Fried’s inner-circle — a tight-knit group of executives who, according to sources, pulled the strings at FTX. Alongside Alameda chief Caroline Ellison, Wang has become a critical witness in the prosecution’s case against Bankman-Fried.

Unlike his childhood friend, Wang has decided to cooperate with the government. He has pled guilty to wire fraud and conspiracy to commit wire fraud, commodities fraud, and securities fraud — charges that add up to a maximum of 50 years behind bars.

As co-founder and former CTO, many are anticipating Wang’s testimony to provide insights into the case. But Wang has kept himself out of the spotlight — both before FTX exploded and after.

So what do we know about Gary Wang and his testimony?

Meet Gary Wang, once the world’s richest person under 30

Given name Zixiao, Wang was eightt years old when his family moved from China to Minnesota. His father, Qiang Wang, described him as “very quiet” from a young age, “solely focused on his strongest interest in math and coding.”

In 2008, the same year that Wang’s family moved to Cherry Hill, New Jersey, he attended a prestigious math camp. Here he met Bankman-Fried and in subsequent years, the pair met Sam Trabucco, who would later become the co-CEO of Alameda.

The trio decided to all attend MIT after high school. Wang and Bankman-Fried pledged Epsilon Theta and were roommates for three years.

Upon graduating with a degree in mathematics and computer science, Wang worked at Google as a software engineer. In 2019, however, he decided to leave in order to found FTX together with his childhood friend.

During FTX’s baller era, Wang was making bank. In 2022, he was named the world’s richest person under 30 by Forbes, raking in an estimated $5.9 billion a year.

Gary Wang’s role in fraud at FTX

According to sources (and his own mother), Wang wasn’t involved in the management of the firm. Instead, he only had eyes for the code. As its CTO, Wang was also responsible for ensuring FTX could accommodate increased bandwidth.

Apart from Wang’s Forbes profile, very little was known about him prior to FTX’s collapse. Many who worked at FTX described Wang as an elusive figure who kept to himself.

That doesn’t mean Wang didn’t play a role in FTX’s fraud, though. The co-founder has testified that he was told to alter FTX’s code to give Alameda ‘special privileges’ like the right to borrow $65 billion — way more money than FTX ever had.

Read more: FTX founders Bankman-Fried and Wang reportedly detained

When Wang pled guilty to fraud, he said he made the changes to the code “knowing that others were representing to investors and customers that Alameda had no such special privileges and people were likely investing in and using FTX based in part on those misrepresentations.”

It remains to be seen what Gary Wang will say in court today. To find out, give us a follow on X and check out our webpage for all the latest trial coverage.

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According to reports, FTX co-founder Gary Wang is being held under supervision by Bahamian authorities alongside Sam Bankman-Fried (SBF). The pair are also being investigated by the country’s financial crimes unit.

Bahamas law enforcement has been probing SBF’s soon-to-be-bankrupt exchange since its collapse last week and, according to an official notice, is “working closely with the Bahamas Securities Commission (SCB) to investigate if any criminal misconduct occurred.”

Read more: Bahamian rhapsody: FTX users exploit loophole to withdraw crypto

Early last week, withdrawals of customer assets from FTX were frozen. However, the SCB did insist that accounts registered in the Bahamas will still be able to access their funds.

Now it looks like things have kicked up another notch with SBF and Wang being detained before they could flee to Dubai.

Protos contacted assistant superintendent with the Bahamian Financial Crimes Unit, Anthony McCartney but was told, “We can’t give any information because investigations are ongoing.”

Who is the mysterious Gary Wang?

SBF occasionally mentions that he founded FTX alongside Gary Wang in 2019. Wang is also the firm’s chief technology officer and is an advisor to Sequoia Capital, an investment fund that invested in various technology companies including DoorDash, Zoom, Apple and AirBnB.

His biography on Forbes claims that he graduated from MIT, worked at Google, and had a 16% share of FTX. Unfortunately, there’s very little information beyond that available online, although some have speculated that he has a GitHub.

Wang and his connection with Sequoia may also explain the origins and meteoric rise of SBF. He’s often claimed that he made his money arbitraging bitcoin in 2017 by buying it in the US and selling it in Japan.

However, as Marc Cohodes recently pointed out, this would have required a significant amount of capital to pull off effectively. SBF claimed that he was pulling in around $1 million every day over the course of around five weeks but for this to have been possible, he would have needed to buy bitcoin at $18,000 and sell at around $19,000 with an initial capital injection of at least $18 million.

Read more: Can FTX tokenize its own bankruptcy?

So, this begs the question: Where did SBF get his $18 million to execute the Kimchi trade? A Forbes list of investors who’ve been most severely hit by FTX’s bankruptcy may give us a clue. And indeed, one of the largest investors is Gary Wang’s Sequoia Capital with a stake of 1.1% and an estimated investment of $200 million.

For more informed news, follow us on Twitter and Google News or listen to our investigative podcast Innovated: Blockchain City.

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