CFTC and SEC charge Ellison and Wang as they plead guilty of fraud in FTX case

Rick Steves

The Commodity Futures Trading Commission and the Securities and Exchange Commission have amended their complaints in the FTX case in order to add fraud charges against Caroline Ellison, Alameda CEO, and Gary Wang, Alameda and FTX Co-Founder.

Besides charging them, the CFTC charges Samuel Bankman-Fried, FTX, and Alameda, for causing the loss of over $8 billion in FTX customer deposits. The SEC charges all these defendants for defrauding equity investors in FTX.

Ellison and Wang both entered guilty pleas to commodities fraud and other charges in a separate, parallel action against them in the Southern District of New York.

Alameda had unlimited credit, quicker execution, no auto-liquidation at FTX

According to the authorities, Gary Wang created features in the code underlying the FTX trading platform that allowed Alameda to maintain an essentially unlimited line of credit on FTX.

FTX executives, including Wang, created other exceptions to FTX’s standard processes that allowed Alameda to have an unfair advantage when transacting on the platform, including quicker execution times and an exemption from the platform’s distinctive auto-liquidation risk management process.

These critical code features and structural exceptions allowed Alameda to secretly and recklessly siphon FTX customer assets from the FTX platform.

Caroline Ellison directed Alameda to use billions of dollars of FTX funds, including FTX customer funds, to trade on other digital asset exchanges and to fund a variety of high-risk digital asset industry investments.

She also made deceptive public statements in her capacity as Alameda’s CEO, including statements about the supposed separation between the operations of Alameda and FTX, in order to facilitate and perpetuate the fraudulent scheme.

Caroline Ellison manipulated the price of FTT

According to the SEC’s complaint, between 2019 and 2022, Ellison, at the direction of Bankman-Fried, furthered the scheme by manipulating the price of FTT, an FTX-issued exchange crypto security token, by purchasing large quantities on the open market to prop up its price.

FTT served as collateral for undisclosed loans by FTX of its customers’ assets to Alameda, a crypto hedge fund owned by Wang and Bankman-Fried and run by Ellison.

The complaint alleges that, by manipulating the price of FTT, Bankman-Fried and Ellison caused the valuation of Alameda’s FTT holdings to be inflated, which in turn caused the value of collateral on Alameda’s balance sheet to be overstated, and misled investors about FTX’s risk exposure.

Read this next

Inside View

Broadridge report finds 27% of firms’ overall IT budget goes to digital transformation

“A new chapter in digital transformation is emerging. In our work with clients across the financial services industry we see leading firms are already reaping the benefits from digitalization and the use of technologies such as AI and blockchain/DLT, as they adapt to economic headwinds and new competitive dynamics”

Executive Moves

Ripple announces Monica Long as President

“I’m incredibly honored to take on the role of President at Ripple as we expand deeper into crypto-enabled services like liquidity, settlement and custody.”

Executive Moves

Arabesque AI appoints Carolina Minio Paluello as CEO

“Arabesque AI is uniquely positioned to service the asset management industry’s need to meet the growing market demand for hyper customised portfolios.”

Industry News

SEC Commissioner Mark T. Uyeda says standardized ESG measures are doomed to fail

“Because ESG ratings may be divorced from matters of financial materiality, they can reflect a particular political or social agenda.”

Industry News

Worldline launches digital payments suite in India

“Our low-cost innovative offering SoftPOS will empower SMBs in a big way to accept digital payments affordably.”

Technology

cTrader Web 4.5 Presents Guest Mode, Multiple Charting and Copy Improvements

Spotware has announced the release of its cTrader Web version 4.5, which comes with a whole range of features and improvements for all cTrader users.

Technology

SteelEye suggests integrated surveillance as Morgan Stanley fines employees over WhatsApp

“The use of integrated surveillance means firms can avoid unwanted regulatory attention by enabling them to self-report and self-remedy more efficiently when malpractice is flagged.”

Industry News

ASIC bans Gregory William Finerty for unlicensed FX algo trading bot

Bradford AI leased an algorithmic trading program known as ‘Robot 1’ to trade on the FX market, using an Australia-based over the counter contracts for difference (CFD) broker.

Opinion

With the recent changes to St Vincent licensing, what will the future trends be for licensing in 2023?

New St. Vincent and the Grenadines regulations came as somewhat of a shock for those brokerages that are only regulated in SVG

<