Formal charges against two former executives in the FTX case were laid on December 21 by the securities and Exchange Commission (SEC). Caroline Ellison, the former CEO of Alameda Research, and Zixiao (Gary) Wang, the former Chief Technology Officer of FTX Trading Ltd, were accused of “a multiyear scheme to defraud equity investors in FTX”.

The pair are charged with violating the anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. SEC Gary Gensler said the pair acted “to prop up the value of their house of cards”.

The detail of the SEC charges is that;

• Ellison manipulated the price of FTT, an FTX-issued cryptocurrency, at the direction of Bankman-Fried between 2019 and 2022;
• Ellison and Wang knew, in that same period, that Bankman-Fried’s statements to investors presenting FTX as a safe crypto asset trading platform and telling them Alameda was just another customer were false and misleading;
• Ellison and Wang actively participated in the scheme to deceive investors by creating software code that allowed FTX funds to be diverted to Alameda; and
• Ellison and Wang continued to direct hundreds of millions of dollars in FTX customer funds to Alameda even after it became clear obligations could not be fulfilled.

The SEC statement said: “Ellison and Wang have consented to bifurcated settlements, which are subject to court approval, under which they will be permanently enjoined from violating the federal securities laws”.

Separate charges were laid in a parallel action brought by the US attorney’s office for the Southern District of New York. The charges include wire and securities fraud and conspiracy to commit money laundering.

Agreed to cooperate

Ellison and Wang have entered guilty pleas and have agreed to cooperate with ongoing investigations. The seven counts Ellison pled guilty to carried a maximum sentence of 110 years, while the four Wang admitted carried maximum sentences of 50 years. The two were the closest associates of FTX founder and former CEO Sam Bankman-Fried.

Damian Williams, the US attorney for the Southern District of New York, said “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.”