Caroline Ellison Pleads Guilty To FTX Fraud Scheme, Posts $250K Bail
The ex-Alameda chief faces a potential 110 years in prison, adding another legal problem after the SEC also charged her and ex-FTX CTO Gary Wang.
Former Alameda Research CEO Caroline Ellison and former FTX CTO Zixiao (Gary) Wang were charged today by the Securities and Exchange Commission for their roles in a multiyear scheme to defraud investors in FTX. The regulatory body also added that “investigations into other securities law violations and into other entities and persons relating to the alleged misconduct are ongoing.”
This follows the SEC’s initial complaint filed against former FTX chief Sam Bankman-Fried, claiming he “used Alameda to carry out his fraudulent scheme from the start.” The misappropriation of funds led to the collapse of both FTX and Alameda into bankruptcy.
The regulatory body is charging Ellison for furthering Bankman-Fried’s scheme, “by manipulating the price of FTT, an FTX-issued exchange crypto security token.” She allegedly purchased large quantities in the open market to prop up the digital asset’s price.
“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,” the SEC statement read.
Wang is being charged as part of the scheme given that he was the co-founder of FTX with Bankman-Fried. Likewise, the SEC is tagging him to the former FTX chief’s fraudulent act of “improperly [diverting] FTX customer assets to Alameda.”
Further, the ex-CTO also allegedly “created FTX’s software code that allowed Alameda to divert FTX customer funds,” while Ellison, “used misappropriated FTX customer funds for Alameda’s trading activity.” The latter led to liquidity crunches as the hedge fund’s bets did not pay off, alongside the collapse of the crypto prices this year.
The SEC also alleges that Ellison and Wang knew or should have known that Bankman-Fried’s statements in touting FTX’s risk mitigation measure, as well as claiming that Alameda had no special privileges to FTX’s account, were “false and misleading.”
“As part of their deception, we allege that Caroline Ellison and Sam Bankman-Fried schemed to manipulate the price of FTT, an exchange crypto security token that was integral to FTX, to prop up the value of their house of cards,” said SEC Chair Gary Gensler. “We further allege that Ms. Ellison and Mr. Wang played an active role in a scheme to misuse FTX customer assets to prop up Alameda and to post collateral for margin trading.”
The regulatory body, however, added that “Ellison and Wang have consented to bifurcated settlements,” with the amount still to be determined by a court. The duo is said to be “cooperating with the SEC’s ongoing investigation.”
Gensler, who chairs the SEC that said in its complaint against Bankman-Fried that FTX ran a fraudulent scheme from day 1, doubled down on crypto platforms not complying with “time-tested securities laws.”
“It remains a priority of the SEC to use all of our available tools to bring the industry into compliance,” the chair added.
Guilty plea
Corollary, the US Southern District of New York (SDNY) Attorney’s Office also announced charges against Ellison and Wang.
“Both Ms. Ellison and Mr. Wang pled guilty to those charges and they are both cooperating with the Southern District of New York,” US Attorney Damian Williams said in a statement.
In connection to her guilty plea, Ellison posted a $250,000 personal recognizance bond for her temporary release and surrendered all her travel documents.
The ex-Alameda CEO accepted the seven counts of violation hurled by the SDNY at her, facing a potential total maximum sentence of 110 years of imprisonment. She also forfeits to the US government, “any and all property… that constitutes or is derived from proceeds traceable to the commission of the said offenses.” This will be on top of any fine, restitution, cost of imprisonment, or any other penalty the court may impose upon her.
Ellison is also expected to, among other things, “disclose all information concerning all matters” related to the investigations of relevant law enforcement agencies, testify before the grand jury and at any trial, and be upfront with all the crimes she has committed or involved in.
The plea entered also stipulated that if Ellison “fully complies” with the agreement, all her testimonies will not be used against her in pursuing a criminal tax prosecution nor she will be further prosecuted criminally.
Ellison settling her charges and cooperating with SEC solidifies the theory that she would turn on Bankman-Fried, which first surfaced after she was spotted in SoHo Manhattan, disputing the rumors that she’s in Hong Kong.
READ: FTX Plot Twist: Is Ex-Alameda CEO Caroline Ellison Turning On Sam Bankman-Fried?
The 28-year old former Alameda chief tapped two heavyweights of financial law from WilmerHale, a reportedly well-connected DC law firm, former SEC Division of Enforcement Director Stephanie Avakian and former federal prosecutor Anjan Sahni.
During her SEC stint, Avakian oversaw action against Ripple Labs, a blockchain business whose founders were accused of illegally obtaining $1.3 billion through an issuance of unregistered digital asset securities.
Meanwhile, Sahni was instrumental in leading investigations into accomplices of Bernie Madoff, the American fraudster who orchestrated the largest Ponzi scheme in history.
READ: Caroline Ellison Hires Ex-SEC Director As Legal Battle With Sam Bankman-Fried Looms
Sources have said Bankman-Fried and Ellison were at times romantically involved–which the FTX founder confirmed although they are not in a relationship anymore. They added that while Ellison ran Alameda, Bankman-Fried was also active, contributing to important trade decisions, according to a source familiar with the company’s inner workings. There did not appear to be much of a barrier between the enterprises at times.
Just for a fun and a sobering reminder, this is who the SEC and the SDNY charged with fraud and are working with in the investigation:
Information for this briefing was found via the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
