What to know:
- CFTC ends cases against Ellison and Wang with multi-year trading and registration bans.
- Ellison and Wang avoid monetary penalties after cooperation in the broader FTX probe.
- The $11.02B forfeiture order remains in place from criminal proceedings involving both parties.
The CFTC has resolved its civil enforcement cases against former Alameda Research CEO Caroline Ellison and FTX co-founder Gary Wang. The court imposed multi-year trading and registration bans after considering their cooperation in investigations tied to the collapse of FTX.
The U.S. District Court for the Southern District of New York entered supplemental consent orders on Aug. 19. Ellison received a five-year trading ban and a 10-year registration ban. Wang received a five-year trading ban and an eight-year registration ban.
Source: CFTC
Why Did the CFTC Reduce Penalties for Ellison and Wang?
The bans run from Dec. 23, 2022, when the court entered the initial consent orders. Both defendants must also continue cooperating with the CFTC in its investigation and related proceedings.
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Under the 2022 orders, Ellison was found guilty of both counts of fraud brought in the regulatory complaint. Similarly, Wang was found guilty of the single count of fraud brought against him. Both parties have been permanently prohibited from violating the antifraud provisions of federal commodities law.
These orders conclude the CFTC’s enforcement actions against Ellison and Wang. The agency is not demanding any restitution, disgorgement, or civil monetary penalties from either party at the moment.
This decision of the CFTC, among other things, was based on the extent of cooperation from the defendants. Also, the CFTC took into consideration the financial impact of the related federal criminal proceedings.
According to the CFTC’s Enforcement Director David I. Miller, the imposed sanctions reflected the significant contribution made by both individuals. It was a clear indication of the importance attached to cooperation in the division.
Both Ellison and Wang pleaded guilty to federal criminal charges in December 2022. They admitted to the charges associated with schemes that involved defrauding the FTX customers and investors. Both parties admitted to conspiracy to commit commodities fraud.
According to the CFTC, the criminal proceedings included an $11.02 billion forfeiture order. Ellison and Wang were held jointly and severally liable for the amount.
FTX Fraud Case Involved Billions in Customer Funds
Ellison and Wang were first indicted by the agency via an amended complaint filed in December 2022. They were accused of being part of the broader scam that involved the above-named parties.
As per the complaint, customer funds of FTX were regularly stored by Alameda and blended into the company’s funds. The regulator further claims that billions of dollars of the customer funds were misused by Alameda and its executives.
Source: Reuters
Another accusation made against Wang in the complaint was that he helped develop code characteristics that gave preferential treatment to Alameda in FTX. Some such characteristics were the virtually unlimited line of credit and transactions despite not having enough funds.
In addition, the regulator accuses Ellison of ordering Alameda to misuse billions of dollars belonging to FTX. These funds included the customer funds and were used for trading and digital asset investments.
Settlement Closes CFTC Cases Against Ellison and Wang
These supplemental orders now settle the civil suits brought by the regulator against the two former executives. The conditions of cooperation will still be applicable. These trading and registration bans are also to stay for the time periods fixed by the court.
The decision does not undo the previous fraud allegations against the two executives. Instead, it brings in the final civil penalties in light of their assistance and the forfeitures made in the criminal case.
According to the CFTC, both the executives cooperated in its investigation in connection with FTX. Thus, their case concludes without any monetary penalties by the commodities regulator.
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