Release Number 8644-22
CFTC Charges Alameda CEO and Alameda and FTX Co-Founder with Fraud in Action Against Sam Bankman-Fried and his Companies
Caroline Ellison and Gary Wang Acknowledge Liability
December 21, 2022
Washington, D.C. — The Commodity Futures Trading Commission today filed fraud charges against Caroline Ellison, Alameda CEO, and Zixiao “Gary” Wang, Alameda and FTX Co-Founder, in an amended complaint filed in the U.S. District Court for the Southern District of New York. The CFTC initially filed this fraud action on December 13 against Samuel Bankman-Fried, FTX Trading Ltd. (FTX), and Alameda Research LLC (Alameda), charging a fraudulent scheme that caused the loss of over $8 billion in FTX customer deposits. [See CFTC Press Release No. 8638-22].
The amended complaint charges Ellison and Wang with engaging in a fraudulent scheme, along with the previously charged defendants. The amended complaint charges Ellison with fraud and material misrepresentations in connection with the sale of digital asset commodities in interstate commerce, and charges Wang with fraud in connection with the sale of digital asset commodities in interstate commerce.
As alleged in the amended complaint, Wang created features in the code underlying the FTX trading platform that allowed Alameda to maintain an essentially unlimited line of credit on FTX. As further alleged, at Bankman-Fried’s direction, 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.
The amended complaint further charges that, beginning in October 2021, Ellison was co-Chief Executive Officer (CEO) of Alameda, and later sole CEO and, along with Bankman-Fried and others, 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. As further alleged, Ellison 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.
Ellison and Wang do not contest their liability on the CFTC’s claims. Both have agreed to the entry of consent orders of judgment as to their liability for engaging in fraud in violation of Section 6(c)(1) of the Commodity Exchange Act and CFTC Regulation 180.1.
“With today’s charges we continue to move aggressively to hold all individuals who commit fraud accountable and protect customers from additional harm and losses. In the absence of a comprehensive regulatory framework over digital assets, the CFTC will use all of its existing power and authority to protect all market participants, while ensuring the integrity of commodity markets,” said CFTC Chairman Rostin Behnam.
“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 also continue to work cooperatively with our law enforcement partners in the U.S. and abroad to conduct rapid and comprehensive investigations to address fraudulent wrongdoing.”
The initial complaint and the amended complaint allege that from at least May 2019 through November 11, 2022, Bankman-Fried controlled both FTX.com, a centralized digital asset derivative trading platform, and Alameda, a trading firm that operated as a primary market maker on FTX. As charged, FTX promoted itself as “the safest and easiest way to buy and sell crypto” and represented that customers’ assets, including both fiat and digital assets including bitcoin and ether, were held in “custody” by FTX and segregated from FTX’s own assets. To the contrary, FTX customer assets were routinely accepted and held by Alameda and commingled with Alameda’s funds. Bankman-Fried, Ellison, and Wang engaged in a fraudulent scheme to misappropriate FTX customer assets for use by Alameda and by FTX and Alameda executives, including luxury real estate purchases, political contributions, and high-risk, illiquid digital asset industry investments. The amended complaint further alleges that, at Bankman-Fried’s direction, FTX employees including Wang created features in the FTX code that favored Alameda and allowed it to execute transactions even when it did not have sufficient funds available, including an “allow negative flag” and effectively limitless line of credit that allowed Alameda to withdraw billions of dollars in customer assets from FTX. These features were not disclosed to the public.
In its continuing litigation against the defendants, the CFTC seeks restitution, disgorgement, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations of the Commodity Exchange Act (CEA) and CFTC regulations, as charged.
The CFTC cautions that orders requiring repayment of funds to victims may not always result in the recovery of lost money because the wrongdoers may not have sufficient funds or assets
Parallel Criminal/Civil Enforcement Action
On December 19, 2022, Ellison and Wang both entered guilty pleas as to commodities fraud and other charges in a separate, parallel action against them in the Southern District of New York. United States v. Zixiao Wang, Crim. No. S1 22 Cr. 673 (RA) (S.D.N.Y. 2022); United States v. Caroline Ellison, Crim. No. S2 22 Cr. 673 (RA) (S.D.N.Y. 2022). Also, on December 20, 2022, the Securities and Exchange Commission charged Ellison and Wang with securities fraud.
The CFTC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York, the Federal Bureau of Investigation, the Securities Exchange Commission, and the Securities Commission of The Bahamas.
The Division of Enforcement staff responsible for this matter are Nina Ruvinsky, Bryan Hsueh, Carlin Metzger, Yusuf Capar, Ray Lavko, Ansley Schrimpf, Jack Murphy, and Benjamin Jackman. It is being supervised by Elizabeth N. Pendleton, Scott R. Williamson and Robert T. Howell. The Division of Market Oversight and the Division of Clearing and Risk also assisted in this matter. The Division of Enforcement’s Digital Asset Task Force also provided assistance.
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Customers and other individuals can report suspicious activities or information, such as possible violations of commodity trading laws, to the Division of Enforcement via a toll-free hotline 866-FON-CFTC (866-366-2382), file a tip or complaint online, or contact the CFTC Whistleblower Office at whistleblower.gov. Whistleblowers are eligible to receive between 10 and 30 percent of the monetary sanctions collected paid from the CFTC Customer Protection Fund financed through monetary sanctions paid to the CFTC by violators of the CEA.