On Dec. 21, 2022, members of U.S. law enforcement detailed that FTX co-founder Gary Wang and ex-Alameda Research CEO Caroline Ellison have pleaded guilty to financial fraud charges. The recent charges against Wang and Ellison highlight some key findings and according to the U.S. Securities and Exchange Commission (SEC), FTX’s exchange token FTT is considered a security.

SEC Complaint Says SBF ‘Directed’ and ‘Instructed’ High-up Execs Like Caroline Ellison to Commit Fraud

U.S. attorney Damian Williams told the public on Wednesday that charges have been filed against Caroline Ellison, the former CEO of Alameda Research, and Zixiao (Gary) Wang, the former Chief Technology Officer of FTX Trading Ltd. The Southern District of New York (SDNY) also told the press that Ellison and Wang were cooperating with federal law enforcement, and the recent SEC charges identify key findings that were previously speculated on or were unknown at the time.

The first glaring evidence shows that the FTX co-founder Sam Bankman-Fried (SBF) said a lot of untruthful things during his recent media tour, at least according to the SEC complaint. The SEC charges show that SBF may have lied during those interviews about specifics, and the SEC accuses Bankman-Fried and Wang of “improperly [diverting] customer assets to Alameda Research LLC and its subsidiaries.” Moreover, the speculation and rumors that said SBF and Wang built a backdoor into FTX for Alameda are also reportedly true, according to the SEC’s accusations.

The SEC complaint says SBF, Wang, and Ellison “had provided Alameda with significant special treatment on the FTX platform, including a virtually unlimited ‘line of credit’ funded by the platform’s customers.” The U.S. regulator further says that Ellison, “acting at the direction of Bankman-Fried,” manipulated the FTX exchange token FTT’s price. The move was meant to increase the price of FTT in order to “inflate the value of Alameda’s collateral.”

The SEC also alleges that SBF was the sole decision maker at Alameda Research. “Bankman-Fried remained the ultimate decision-maker at Alameda, even after Ellison and Trabucco became co-CEOs in or around October 2021,” the SEC’s court filing details. The SEC’s accusations further state:

Most crucially, Bankman-Fried used Alameda to house FTX customer assets and to deploy those assets, under Bankman-Fried’s direction, to help grow his empire.

U.S. Regulator Defines FTT as a Security, SBF’s $250M Bail Bond Deal in Manhattan’s Federal Court

One of the most glaring charges, that may produce broad regulatory measures across the entire crypto industry, is how the SEC defines the crypto token FTT. Essentially, in the eyes of the U.S. securities regulator, FTT is a security. “FTT was offered and sold as an investment contract and, therefore, as a security,” the SEC complaint against Wang and Ellison details. “As a result of FTX and its management team’s large holdings of FTT, the interests of the company and its management team were aligned with those of investors in FTT,” the complaint adds.

The charges against Ellison and Wang further said that the FTT white paper “specifically highlighted the profit potential of the token.” On several occasions throughout the SEC filing, it notes that Ellison says SBF “directed” or “instructed” her to execute many of the misdeeds. The claimed direction Ellison describes completely contradicts SBF’s claims when he said he was unaware of Alameda’s dealings, and that he did not operate the firm. The SEC’s allegations note that for quite some time, Ellison was supposedly ordered to do a number of fraudulent acts under SBF’s command.

In 2022, despite being under significant distress the SEC alleges that “Bankman- Fried and Ellison continued to use FTX customer assets in the summer of 2022.” Funds were leveraged to mislead investors and rescue distressed crypto firms, the SEC’s complaint details. The New York Post reports that SBF was extradited late Wednesday evening, and he is now in New York’s Manhattan district. SBF’s mother “Barbara Fried, was seen arriving at the Pearl Street courthouse hours before an expected noon arraignment,” The Post said. The report further detailed that SBF faced a judge in Manhattan’s federal court in order to be arraigned.

SBF appeared in front of the Manhattan judge, Gabriel Gorenstein, who approved a $250 million bond deal that will allow the FTX co-founder to be placed under house arrest with his parents Joseph Bankman and Barbara Fried. SBF was represented by sex offender Ghislaine Maxwell’s attorney, Mark Cohen, and sources told the New York Post that the “deal was prearranged.” Under the deal, SBF would be allowed out of his parent’s home in California for exercise, mental health, and substance abuse treatments, according to The Post’s account of the bond deal.

Unsealed court documents indicate that Ellison’s plea agreement, which must be approved by the court, shows the former ex-Alameda CEO agreed to $250,000 bail. Ellison also surrendered her passport, and she will need to pay restitution decided on by the court. If Ellison fully cooperates and the SDNY federal court agrees, she may only face criminal tax violations and there’s a chance she could get off without any jail time. The unsealed plea agreement indicates that Ellison is working with the attorney Stephanie Avakian. A plea agreement for Gary Wang’s charges and his specific deal has not yet been revealed to the general public.

What do you think about the key findings in the SEC charges against Ellison and Wang? Let us know what you think about this subject in the comments section below.

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Filed under: Bitcoin - @ December 22, 2022 10:00 pm