SEC Charges Two Former FTX Associates for Roles in Crypto Exchange’s Collapse

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Securities attorney Andrew Stoltmann discusses the charges against FTX founder Sam Bankman-Fried and what’s next for the former crypto CEO on “Kennedy.”

The Securities and Exchange Commission, or SEC, has indicted two former associates of Sam Bankman Fried who allegedly participated in a multi-year scheme to defraud FTX investors.

Former Alameda Research CEO Caroline Ellison and former FTX Trading LTD CTO Zixiao (Gary) Wang were indicted by the SEC on Wednesday.

Caroline Ellison, CEO of Alameda Research, via Twitter (Twitter @carolinecapital)

According to an SEC press release, Ellison manipulated the price of an FTX-issued cryptographic security token called FTT, at the direction of Bankman-Fried, by buying large amounts to increase its price.

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FTT, according to the statement, served as collateral for FTX’s undisclosed loans of its clients’ assets to Alameda. By manipulating the price of FTT, Ellison and Bankman-Fried allegedly inflated the value of Alameda’s FTT holdings.

As a result, the complaint alleges that the value of collateral on Alameda’s balance sheet was overstated and misled investors about FTX’s risk.

The complaint makes several other allegations against Ellison and Wang.

FTX founder Sam Bankman-Fried, center, is escorted by a Corrections Department van as he arrives at the Magistrate’s Court building for a hearing, in Nassau, Bahamas, Wednesday, Dec. 21, 2022. ( AP Photo/Rebecca Blackwell/AP Newsroom)

For example, from May 2019 to November 2022, Bankman-Fried told investors that FTX was safe and that Alameda was just another client with no special privileges. During this time, according to the complaint, Wang and Bankman-Fried diverted FTX client assets to Alameda and both men knew or should have known that the statements they made were false and misleading.

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Wang was the creator of the FTX software code that allowed Alameda to move FTX funds while Ellison used misappropriated FTX funds for Alameda’s business activity.

“As part of their deception, we allege that Caroline Ellison and Sam Bankman-Fried conspired to manipulate the price of FTT, an exchange cryptographic security token that was an integral part of FTX, to bolster the value of their castle of cards,” the SEC Chairman said. 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 support Alameda and post collateral for margin trading.

Sam Bankman-Fried, founder and former chief executive of FTX Cryptocurrency Derivatives Exchange, speaks during an interview on an episode of Bloomberg Wealth with David Rubenstein in New York, U.S., Wednesday, August 17, 2022. Crypto exchange ( Photographer: Jeenah Lune/Bloomberg via Getty Images/Getty Images)

“When FTT and the rest of the house of cards collapsed, Mr. Bankman-Fried, Ms. Ellison and Mr. Wang let investors hold the bag. Until crypto platforms comply with proven securities laws , the risks to investors will persist. It remains a priority for the SEC to use all of our available tools to bring the industry into compliance,” he added.

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Ellison and Wang are accused of violating the anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. As such, the SEC is seeking injunctions against Ellison and Wang restraining them from participating in the issuance, the purchase, offer, or sale of securities other than their own.

The SEC is also seeking restitution of profits they made illegally, a civil penalty, and a ban on officers and directors.

Ellison and Wang are cooperating with the SEC investigation into FTX.

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The complaint comes the same day Bankman-Fried left the Bahamas for the United States after agreeing to be extradited.

He is expected to have his first appearance in court for the Southern District of New York and faces spending the rest of his life in prison.

Freedom Works economist Stephen Moore discusses what will happen to campaign donations former FTX CEO Sam Bankman-Fried gave to politicians on “Varney & Co.”

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