The Securities and Exchange Commission, (SEC) charged Caroline Ellison – the former CEO and Chief Technology Officer at FTX Trading Ltd. – for their involvement in a fraud scheme against equity investors. Investigations into other securities laws violations, related entities and people are still underway.
According to the SEC complaint, Ellison, at the direction of FTX’s co-founder Samuel Bankman Fried, manipulated between 2019 and the year 2022 the price of FTT (an exchange crypto security token issued by FTX). The price of FTT was artificially inflated by buying large quantities at the open market. FTT was placed as collateral by FTX for an undisclosed loan to Alameda. Alameda is a crypto hedge-fund owned by Wang and Bankman-Fried that is operated by Ellison. This manipulation led to an inflated valuation of Alameda’s FTT, misinforming investors about FTX’s exposure to risk.
Bankman-Fried is also accused of presenting FTX falsely as a secure crypto asset trading platform, with sophisticated risk-mitigation measures in order to attract billions from investors. He claimed Alameda had no special privileges and was just another client, while diverting FTX customers’ assets to Alameda. Ellison or Wang should have known these statements are false and misleading.
Ellison, Wang and other participants were actively involved in the fraud and played a key role in deceiving FTX’s investors. Wang was responsible for creating the software code which allowed Alameda and FTX to redirect FTX client funds. Ellison then used these funds to conduct Alameda’s trading. Bankman-Fried, knowing that Alameda, FTX, and Wang could not pay back customers, transferred hundreds of millions more dollars in FTX funds to Alameda.
In the SEC complaint, Ellison is accused of violating different sections of Securities Act of 1933 as well as Securities Exchange Act of 1944. The SEC wants injunctions for future securities law violations. It also wants Ellison and Wang to be prohibited from participating in securities issues, purchases, offers, or sales (except on their personal accounts). They want a civil penalty as well as an officer and director ban. Ellison, Wang, and the SEC have reached settlements that are subject to court approval. They include permanent and conduct-based restrictions, as well officer and directors bars. The court will decide the amount of disgorgement and prejudgment interests, civil penalties, and length of the director and officer bar for Wang.
In a parallel case, the U.S. Attorney’s Office for the Southern District of New York also filed charges against Ellison.
Ellison and Wang have agreed to cooperate with the SEC investigation. The investigation is being conducted by Amy Flaherty Hartman and Jorge Tenreiro under the supervision of David Hirsch, Amy Flaherty Hartman and Michael Brennan. Amy Burkart will lead the SEC’s litigation, which is being overseen by Ladan Steward and Olivia Choe. The investigation was assisted by the U.S. Attorney’s Office for the Southern District of New York and the FBI.
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SEC: What You Need to Know
Securities and Exchange Commission is an American regulatory agency that supervises and enforces federal security laws. The primary goal of the SEC is to protect investors and maintain fair, efficient, and transparent markets. The SEC accomplishes this through regulation of the securities industry. This includes stock exchanges, investment advisors, and brokerage firms. The SEC ensures that investors receive accurate and complete information from companies, and monitors and investigates possible violations of securities laws. It also plays an important role in enforcing the regulations relating to insider trade, fraud and market manipulation. The SEC’s overall goal is to promote trust, transparency and integrity in U.S. Financial Markets.
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