Caroline Ellison, former CEO of Alameda Research, and Zixiao “Gary” Wang, co-founder of both Alameda and FTX, have been charged with fraud by the Commodity Futures Trading Commission (CFTC) in an amended complaint filed December 21, 2022, in the U.S. District Court for the Southern District of New York. The charges stem from a fraudulent scheme that resulted in over $8 billion in losses of FTX customer deposits.
The CFTC initially filed charges December 13 against Samuel Bankman-Fried, FTX Trading Ltd., and Alameda Research LLC. The amended complaint now includes Ellison and Wang, alleging they participated in the same fraudulent scheme. Ellison is specifically charged with fraud and material misrepresentations related to the sale of digital asset commodities in interstate commerce, while Wang is charged with fraud in connection with the sale of those same commodities.
According to the complaint, Wang developed code features within the FTX trading platform that granted Alameda an essentially unlimited line of credit. At the direction of Bankman-Fried, FTX executives, including Wang, allegedly created exceptions to standard processes, giving Alameda an unfair advantage, such as faster execution speeds and exemption from FTX’s auto-liquidation risk management system. These features allowed Alameda to secretly divert FTX customer assets.
Beginning in October 2021, Ellison served as co-CEO of Alameda, later becoming the sole CEO. Alongside Bankman-Fried and others, she allegedly directed Alameda to use billions of dollars in FTX funds – including customer deposits – for trading on other digital asset exchanges and high-risk investments. Ellison is also accused of making deceptive public statements regarding the separation between Alameda and FTX to conceal the fraudulent activity.
Both Ellison and Wang have conceded liability on the CFTC’s claims and have agreed to consent orders of judgment for violating Section 6(c)(1) of the Commodity Exchange Act and CFTC Regulation 180.1. The specifics of penalties and restitution will be determined by the court. CFTC Chairman Rostin Behnam stated the agency is aggressively pursuing accountability for those who commit fraud and protecting customers, especially in the absence of comprehensive digital asset regulation.
“Today’s filings also include concessions of liability by two individuals who, as charged, engaged in significant violations of the Commodity Exchange Act and CFTC regulations, often at the direction of Bankman-Fried,” added CFTC Acting Director of Enforcement Gretchen Lowe. The CFTC will continue to collaborate with domestic and international law enforcement partners to investigate fraudulent wrongdoing.
Source: CFTC.gov
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