The legal repercussions of FTX’s demise took a new turn on Wednesday night when the Securities and Exchange Commission and the Justice Department announced charges against cofounder Sam Bankman-Fried”s former girlfriend, Caroline Ellison. The SEC claims that Ellison manipulated the price of the failed exchange’s FTT token.
For many years, Ellison was close to Bankman-Fried and served as CEO of Alameda Research, the hedge fund that Bankman-Fried is accused of plundering to cover its trading losses. Ellison has pled guilty, which also confirmed recent rumors that she is working with the Justice Department as a witness in its investigation of Bankman-Fried’s alleged criminal activity.
A Justice Department prosecutor said at a press conference that the department had brought criminal fraud-related charges against Ellison and Zixiao (Gary) Wang, FTX’s chief technology officer.
The SEC claims that Ellison took part in a conspiracy to boost the open market price of the FTT token, which FTX utilized as security for unsecured loans.
According to the complaint, Bankman-Fried and Ellison artificially inflated the value of Alameda’s FTT holdings by manipulating the price of FTT. This, in turn, artificially inflated the value of collateral on Alameda’s balance sheet and misled investors about FTX’s risk exposure, according to the SEC.
The SEC alleges that Wang, an executive of FTX, fraudulently routed customer assets to Alameda.
There is no possibility of jail time associated with the charges because the SEC lacks the authority to charge specific people with crimes. Instead, the agency wants to prevent Ellison and Wang from trading securities and wants to get their money back for whatever profits they made from the alleged fraud.
As of Wednesday night, Bankman-Fried, who is being held in the Bahamas on a number of criminal accusations, was being moved to a Brooklyn jail.
The news about Ellison comes two weeks after she was seen in a New York City coffee shop, fueling speculation that she is a cooperating witness—though neither the agency nor Ellison have confirmed this.
The SEC stated in its announcement that Ellison and Wang have been cooperating with the agency and have reached a settlement in relation to certain of the allegations.
