New Developments in the FTX Fraud Case: SEC Issues Statement

The U.S. Securities and Exchange Commission (SEC) announced that it has submitted final settlement agreements to the Southern District of New York Federal Court in its lawsuits against former senior executives of FTX and Alameda Research.

Applications were filed against Caroline Ellison, former CEO of Alameda Research; Zixiao Gary Wang, former CTO of FTX; and Nishad Singh, former co-chief engineer of FTX.

If the court approves, the three individuals will accept permanent anti-fraud injunctions and five-year conduct-based bans. Additionally, Ellison will be barred from serving as a director or board member for 10 years, while Wang and Singh will face eight-year bans.

In lawsuits filed against Ellison and Wang in December 2022, and against Singh in February 2023, the SEC alleged that Samuel Bankman-Fried and FTX raised over $1.8 billion in funds from investors between May 2019 and November 2022, misrepresenting FTX as a secure cryptocurrency trading platform with advanced automated risk mitigation measures to protect client assets. According to the commission, investors were also told that Alameda Research, a crypto hedge fund owned by Bankman-Fried and Wang, was merely an ordinary, non-privileged client on the platform.

According to the complaints, Bankman-Fried, Wang, and Singh, with Ellison’s knowledge and approval, exempted Alameda from these risk mitigation measures and provided it with an almost unlimited line of credit financed by FTX customer funds. The SEC alleges that Wang and Singh created software code that allowed FTX customer funds to be channeled to Alameda; and that Ellison used the improperly used customer funds in Alameda’s trading activities. Furthermore, it is alleged that Bankman-Fried transferred hundreds of millions of dollars more to Alameda with the knowledge of Ellison, Wang, and Singh; and that these funds were used in venture investments and “loans” given to Bankman-Fried and some FTX executives, including Wang and Singh.

According to the SEC statement, Ellison, Wang, and Singh, without admitting or denying the Commission’s allegations, agreed to permanent restraining orders and additional five-year conduct-based sanctions for violating fraud provisions under Section 10(b) and Rule 10b-5 of the Securities Exchange Act and Section 17(a) of the Securities Act 1933.

*This is not investment advice.