Washington DC, December 21, 2022 —
The Securities and Exchange Commission today named Caroline Ellison, former CEO of Alameda Research, and Zixiao (Gary) Wang, former chief technology officer of FTX Trading Ltd. (FTX), indicted for its role in a multi-year scheme to deceive stock investors FTX, the crypto trading platform co-founded by Samuel Bankman-Fried and Wang. Investigations are ongoing into other violations of securities laws and other organizations and individuals in connection with the alleged wrongdoing.
According to the SEC’s complaint, between 2019 and 2022, at Bankman-Fried’s direction, Ellison promoted the program by manipulating the price of FTT, an exchange crypto security token issued by FTX, by buying large amounts on the open market, to support increase its price. FTT served as collateral for FTX’s undisclosed loans from its clients’ assets to Alameda, a crypto hedge fund owned by Wang and Bankman-Fried and operated by Ellison. The complaint alleges that by manipulating the FTT price, Bankman-Fried and Ellison caused Alameda’s FTT holdings to be overstated, which in turn caused the value of the collateral to be overstated on Alameda’s balance sheet, and would have misled investors about FTX’s risk exposure.
Additionally, the complaint alleges that from at least May 2019 to November 2022, Bankman-Fried raised billions of dollars from investors by falsely touting FTX as a secure crypto-asset trading platform with sophisticated risk mitigation measures to protect client assets and informing investors that Alameda was just another customer with no special privileges; Meanwhile, Bankman-Fried and Wang improperly diverted FTX client funds to Alameda. 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 FTX’s investor deception program and engaged in behavior critical to its success. The complaint alleges that Wang created FTX’s software code that enabled Alameda to reroute FTX client funds and that Ellison used misappropriated FTX client funds for Alameda’s trading activities. The complaint further alleges that Bankman-Fried, with Ellison and Wang’s knowledge, had transferred hundreds of millions of additional dollars in FTX client funds to Alameda, even though it became clear that Alameda and FTX could not fully liquidate clients.
“As part of their deception, we allege that Caroline Ellison and Sam Bankman-Fried planned to manipulate the price of FTT, a crypto security token that was an integral part of FTX, to prop up the value of their house of cards,” the SEC Chairman said Gary Gensler. “We further allege that Ms. Ellison and Mr. Wang played an active role in a scheme to misuse FTX client assets to prop up Alameda and post collateral for margin trading. When FTT and the rest of the house of cards collapsed, Mr. Bankman-Fried, Ms. Ellison and Mr. Wang kept investors in their pockets. Until crypto platforms comply with tried and true securities laws, risks for investors will remain. It remains a priority for the SEC to use all of our available tools to bring the industry into compliance.”
“As alleged, Mr. Bankman-Fried, Ms. Ellison and Mr. Wang were active participants in a scheme to conceal material information from FTX investors, including through Mr. Bankman-Fried’s and Ms. Ellison’s efforts to artificially back the Value of the FTT serving as collateral for undisclosed loans Alameda made from FTX under its undisclosed and virtually unlimited line of credit,” said Sanjay Wadhwa, deputy director of the SEC’s Division of Enforcement into Alameda’s books, the defendants concealed the very real risks facing FTX’s investors and clients.”
The SEC’s complaint alleges that Ellison and Wang violated the anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. The SEC’s complaint seeks injunctive relief against future securities law violations; an injunction barring Ellison and Wang from engaging in the issuing, buying, offering or selling of any securities other than in their own personal accounts; surrender of their ill-gotten gains; a civil penalty; and an officer and director’s baton. Ellison and Wang have agreed to two-part settlements, subject to court approval, under which they are permanently waived from violating the federal securities laws, the conduct-related injunctions described above, and the office and director bans. At the request of the SEC, the court will determine whether and to what extent pre-judgment forfeiture of ill-gotten gains plus interest and/or a civil penalty is appropriate, the length of the statute of limitations for officers and directors, and the conduct-based injunction against Wang.
In parallel, the US Attorney’s Office for the Southern District of New York today announced charges against Ellison and Wang.
Ellison and Wang are cooperating with the SEC’s ongoing investigation being led by Crypto Assets and Cyber Unit’s Devlin N. Su, Ivan Snyder and David S. Brown, along with Brian Huchro and Pasha Salimi. It is overseen by Amy Flaherty Hartman, Michael Brennan, Jorge Tenreiro and David Hirsch. The SEC’s litigation is led by Amy Burkart and David D’Addio and overseen by Ladan Stewart and Olivia Choe. Additional support for the investigation was provided by Therese Scheuer, Alistaire Bambach, Ainsley Kerr, William Connolly and Howard Kaplan.
The SEC appreciates the support of the US Attorney’s Office for the Southern District of New York, the FBI and the Commodity Futures Trading Commission.