Caroline Ellison and Gary Wang charged with defrauding investors by SEC
The Securities and Exchange Commission (SEC) has filed a complaint against Caroline Ellison, former CEO of Alameda Research, and Zixiao (Gary) Wang, former CTO of FTX Trading, accusing them of defrauding equity investors in FTX Trading through a scheme that took place between 2019 and 2022. The scheme allegedly involved the manipulation of the price of FTT, a crypto security token issued by FTX, through the purchase of large quantities on the open market.
According to the SEC, FTT served as collateral for undisclosed loans by FTX of its customers' assets to Alameda, a crypto hedge fund owned by Wang and run by Ellison. The manipulation of FTT's price caused the valuation of Alameda's FTT holdings to be inflated, misleading investors about FTX's risk exposure.
The SEC's complaint also accuses FTX founder Sam Bankman-Fried of raising billions of dollars from investors by falsely promoting FTX as a safe crypto asset trading platform with sophisticated risk mitigation measures, while simultaneously diverting FTX customer assets to Alameda.
Wang is accused of creating FTX's software code that allowed Alameda to divert FTX customer funds, while Ellison is accused of using misappropriated FTX customer funds for Alameda's trading activity. Even as it became clear that Alameda and FTX could not make customers whole, Bankman-Fried is accused of directing hundreds of millions of dollars more in FTX customer funds to Alameda.
The SEC's complaint charges Ellison and Wang with violating the anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. The SEC is seeking injunctions, disgorgement, and civil penalties against the two individuals. The complaint also charges Bankman-Fried with violating the anti-fraud provisions of the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Advisers Act of 1940. Additionally, the complaint charges Alameda with violating the anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934.
The SEC's investigation into other securities law violations and into other entities and individuals relating to the alleged misconduct is ongoing. The complaint was filed in the Southern District of New York and has been assigned to U.S. District Judge William H. Pauley III.
This is a significant development in the ongoing crackdown on fraudulent activity in the crypto industry by regulatory agencies. The manipulation of crypto asset prices through the use of undisclosed loans and the misappropriation of customer funds is a serious breach of trust that can have serious consequences for investors. It is imperative that investors thoroughly research any crypto assets or platforms before making an investment, and that they are aware of the potential risks involved. The SEC's action against Ellison, Wang, Bankman-Fried, and Alameda serves as a reminder of the importance of due diligence and the need for transparency in the crypto industry.