Caroline Ellison and Gary Wang Accused of Exploiting Investors in Crypto Trading Asset
Caroline Ellison, the former CEO of Alameda Research, and Zixiao (Gary) Wang, the former Chief Technology Officer of FTX Trading Ltd. (FTX), were charged today by the Securities and Exchange Commission for their roles in a multiyear scheme to defraud equity investors in FTX, the crypto trading platform co-founded by Samuel Bankman-Fried and Wang. Investigations into other alleged securities law violations, as well as other entities and individuals, are ongoing.
According to the SEC complaint, between 2019 and 2022, Ellison advanced the scheme by manipulating the price of FTT, an FTX-issued exchange crypto security token, by purchasing large quantities on the open market to prop up its price. FTT served as collateral for FTX’s undisclosed loans of its customers’ assets to Alameda, a crypto hedge fund run by Ellison and owned by Wang and Bankman-Fried.
The complaint claims that by manipulating the price of FTT, Bankman-Fried and Ellison inflate the value of Alameda’s FTT holdings, which in turn inflates the value of collateral on Alameda’s balance sheet and misleads investors about FTX’s risk exposure.
Furthermore, from at least May 2019 until November 2022, Bankman-Fried allegedly raised billions of dollars from investors by falsely touting FTX as a safe crypto asset trading platform with sophisticated risk mitigation measures to protect customer assets and by telling investors that Alameda was just another customer with no special privileges; meanwhile, Bankman-Fried and Wang allegedly improperly diverted FTX customer assets to Alameda. According to the complaint, Ellison and Wang knew or should have known that their statements were false and misleading.
The complaint also claims that Ellison and Wang were active participants in the scheme to defraud FTX’s investors and engaged in critical conduct to its success. According to the complaint, Wang wrote the software code for FTX that allowed Alameda to divert FTX customer funds, and Ellison used the misappropriated FTX customer funds for Alameda’s trading activity.
The complaint also claims that, even after it became clear that Alameda and FTX could not make customers whole, Bankman-Fried directed hundreds of millions of dollars more in FTX customer funds to Alameda with the knowledge of Ellison and Wang.
We allege that Caroline Ellison and Sam Bankman-Fried schemed to manipulate the price of FTT, an exchange crypto security token that was integral to FTX, as part of their deception,” said SEC Chair Gary Gensler. “We also claim that Ms. Ellison and Mr. Wang were active participants in a scheme to use FTX customer assets to prop up Alameda and post collateral for margin trading.
Mr. Bankman-Fried, Ms. Ellison, and Mr. Wang left investors holding the bag when FTT and the rest of the house of cards collapsed. Investors will face risks until crypto platforms comply with time-tested securities laws. The SEC will continue to use all 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 and Ms. Ellison’s efforts to artificially prop up the value of FTT, which served as collateral for undisclosed loans that Alameda took out from FTX pursuant to its undisclosed, and virtually unlimited, line of credit,” said Sanjay Wa “By secretly siphoning FTX’s customer funds onto Alameda’s books, defendants concealed the very real risks that FTX’s investors and customers faced.”
The Securities and Exchange Commission’s complaint accuses Ellison and Wang of violating the anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. The SEC’s complaint seeks injunctions against future securities law violations, as well as an injunction prohibiting Ellison and Wang from participating in the issuance, purchase, offer, or sale of any securities, other than for their own personal accounts; disgorgement of their ill-gotten gains; a civil penalty; and an officer and director bar.
Ellison and Wang have agreed to bifurcated settlements, subject to court approval, under which they will be permanently barred from violating federal securities laws, as well as the previously described conduct-based injunctions and officer and director bars.
The court will decide whether and how much disgorgement of ill-gotten gains plus prejudgment interest and/or a civil penalty is appropriate, as well as the length of the officer and director bar and the conduct-based injunction imposed against Wang, based on the SEC’s motion.
In a related action, the United States Attorney’s Office for the Southern District of New York announced charges against Ellison and Wang today.
Ellison and Wang are cooperating with the SEC’s ongoing investigation, which is being led by the Crypto Assets and Cyber Unit’s Devlin N. Su, Ivan Snyder, and David S. Brown, as well as Brian Huchro and Pasha Salimi. Amy Flaherty Hartman, Michael Brennan, Jorge Tenreiro, and David Hirsch are the supervisors. Amy Burkart and David D’Addio will lead the SEC’s litigation, which will be overseen by Ladan Stewart and Olivia Choe. Therese Scheuer, Alistaire Bambach, Ainsley Kerr, William Connolly, and Howard Kaplan also contributed to the investigation.
The SEC thanks the US Attorney’s Office for the Southern District of New York, the FBI, and the Commodity Futures Trading Commission for their assistance.
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