The U.S. Securities regulator has charged FTX Trading Ltd.’s co-founder and former Chief Technology Officer, Zixiao (Gary) Wang, as well as former CEO of Alameda Research LLC, Caroline Ellison, for their roles in a multiyear scheme to defraud equity investors in the troubled crypto asset trading platform.
Separately, charges were recorded against Ellison and Wang by the U.S. Attorney’s Office for the Southern District of New York.
The move comes after the Securities and Exchange Commission or SEC charged Samuel Bankman-Fried, who founded FTX with Wang, last week for scheming to defraud investors. Bankman-Fried was arrested last week in Bahamas, where the crypto asset trading platform is based, at the request of the U.S. Government on federal criminal charges.
The agency earlier had alleged that FTX, since at least May 2019, raised more than $1.8 billion from equity investors, including around $1.1 billion from approximately 90 U.S.-based investors.
The SEC’s investigations into other securities law violations and other entities and persons relating to the alleged misconduct are ongoing.
The SEC, in its complaint, had accused Bankman-Fried of raising billions of dollars from investors by falsely promoting FTX as a safe, responsible crypto asset trading platform, while orchestrating a years-long fraud to conceal from FTX’s investors. He allegedly covered the diversion of FTX customers’ funds to Alameda Research, a crypto hedge fund owned by Bankman-Fried and Wang, and run by Ellison.
In its latest statement, the agency alleged that 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.
The complaint alleges that Ellison and Wang were active participants in the scheme to deceive FTX’s investors and engaged in conduct that was critical to its success. As per the complaint, Wang created FTX’s software code that allowed Alameda to divert FTX customer funds, and Ellison used misappropriated FTX customer funds for Alameda’s trading activity.
The complaint further alleges that, even as it became clear that Alameda and FTX could not make customers whole, Bankman-Fried, with the knowledge of Ellison and Wang, directed hundreds of millions of dollars more in FTX customer funds to Alameda.
Sanjay Wadhwa, Deputy Director of the SEC’s Division of Enforcement, said, “As alleged, Mr. Bankman-Fried, Ms. Ellison, and Mr. Wang were active participants in a scheme to conceal material information from FTX investors….. By surreptitiously siphoning FTX’s customer funds onto the books of Alameda, defendants hid the very real risks that FTX’s investors and customers faced.”
The SEC’s complaint seeks injunctions against Ellison and Wang, and a civil penalty, among others.
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