The Securities and Exchange Commission (SEC) has charged Caroline Ellison, the former CEO of Alameda Research, and Zixiao (Gary) Wang, the former Chief Technology Officer of FTX Trading Ltd. (FTX), for their part in the “multi-year scheme” to commit fraud in regards to FTX, once one of the largest crypto exchanges in the world. Both Ellison and Wang were terminated last November as FTX filed for bankruptcy protection.
Sam Bankman-Fried, the founder of both entities and former CEO of FTX, has been charged with fraud by the SEC as well.
The SEC adds that the investigation is ongoing and more charges could be filed going forward. Similar to the criminal charges filed by in the Southern District of New York, Ellison and Wang are cooperating with the SEC’s ongoing investigation. Ellison, at one point, was reportedly in a relationship with Bankman-Fried.
The SEC’s complaint alleges that Ellison, at the direction of Bankman-Fried, manipulated the price of FTT, an “FTX-issued exchange crypto security token,” by purchasing large quantities on the open market to prop up its price. As has been previously reported, the SEC notes that FTT served as collateral for undisclosed loans by FTX of its customers’ assets to Alameda, a crypto hedge fund owned by Wang and Bankman-Fried and run by Ellison.
The complaint alleges that, by manipulating the price of FTT, Bankman-Fried and Ellison caused the valuation of Alameda’s FTT holdings to be inflated, which in turn caused the value of collateral on Alameda’s balance sheet to be overstated, and misled investors about FTX’s risk exposure.
The complaint also alleges that Bankman-Fried raised billions of dollars from investors by touting FTX as a safe crypto asset trading platform and by telling investors that Alameda was just another customer with no special privileges. The SEC alleges this is false, as Bankman-Fried and Wang improperly diverted FTX customer assets to Alameda. Wang apparently created a back door on FTX that allowed Alameda to divert FTX customer funds, and Ellison used the misappropriated funds for Alameda’s trading activity.
The complaint alleges that Ellison and Wang knew or should have known that such statements were false and misleading.
The complaint also alleges that Ellison and Wang were active participants in the scheme to deceive FTX’s investors and engaged in conduct that was critical to its success.
The complaint claims that, even as it became clear that Alameda and FTX could not make customers whole, Bankman-Fried, with the knowledge of Ellison and Wang, directed hundreds of millions of dollars more in FTX customer funds to Alameda.
The SEC’s complaint is available here.
