Last night, the Justice Department of the Southern District of New York said it had charged Caroline Ellison, the former CEO of crypto hedge fund Alameda, and FTX co-founder and former CTO Gary Wang with criminal fraud. In addition to being a shareholder in cryptocurrency exchange FTX, Wang was the co-owner of Alameda with Sam Bankman-Fried (SBF).
“Both Miss Ellison and Mr. Wang have pled guilty to those charges and they are both cooperating with the Southern District of New York,” said U.S. Attorney Damian Williams.
The news doesn’t come as a huge surprise as a Twitter photo showed Ellison buying coffee in New York on December 4.
Additionally, the CFTC and SEC charged the two with civil fraud, and they have also settled those charges.
On December 12, FTX CEO Sam Bankman-Fried was charged with fraud over the collapse of FTX by the Justice Department, the SEC and CFTC. The criminal charges include wire fraud on customers as well as seeking political influence by violating campaign finance laws. In the Bahamas, SBF waived his right to an extradition hearing yesterday and was taken into FBI custody and transported to the United States.
SEC alleges FTT token price maninpuated
The SEC alleges that at SBF’s direction, Ellison manipulated the price of the FTT token that was used as collateral by Alameda loans.
Regarding Wang, he’s alleged to have written the code to divert customer funds from FTX to Alameda, and “Ellison, in turn, used the misappropriated FTX customer funds for Alameda’s trading activity,” states the complaint.
The SEC is targeting fraud against the U.S. investors in FTX, and to prove fraud there needs to have been a loss due to a misrepresentation.
Hence, the complaint alleges that SBF “told investors and prospective investors that FTX had top-notch, sophisticated automated risk measures in place to protect customer assets, that those assets were safe and secure, and that Alameda was just another platform customer with no special privileges. Defendants knew or were reckless in not knowing that these statements were false and misleading.”
The special treatment was the almost unlimited line of credit that FTX gave Alameda. But additionally, Alameda borrowed from third-party lenders using the FTT token as collateral.
However, the SEC charges outline how the FTT token was “offered and sold as an investment contract and, therefore, as a security.” It states that, on occasion at Bankman-Fried’s direction, Ellison adjusted the parameters of the trading bots to support the price of the FTT token.
As part of the SEC settlement, Ellison and Wang have to hand over any ‘ill-gotten gains’, cannot be involved in future securities issuance including for crypto-assets, a bar on being an officer or director, and a civil penalty.
The CFTC amended its previous complaint against SBF to include similar claims to the SEC’s against Ellison and Wang. They’ve also settled that lawsuit.
Another colleague, Ryan Salame, the co-CEO of FTX Digital, informed the Securities Commission of the Bahamas on November 9 that FTX funds had been transferred to Alameda. Salame, a qualified accountant, made more than $24 million in financial contributions to Republican election campaigns, according to the Federal Electoral Commission.
However, Salame was not mentioned directly in the New York Attorney’s announcement, who also stated, “If you participated in misconduct at FTX or Alameda, now is the time to get ahead of it. We are moving quickly and our patience is not eternal.”