13 takeaways from the complaints against Gary Wang of FTX and Caroline Ellison of Alameda

The collapse of crypto exchange FTX is becoming increasingly clear.

The complaints released Wednesday night from the Securities and Exchange Commission and the Commodity Futures Trading Commission provide the most comprehensive view ever of how Sam Bankman-Fried’s operation collapsed.

In the new 81-page documents, how FTX sent client funds to Bankman-Fried’s hedge fund Alameda Research, prompted senior executives to create proprietary software code to facilitate such transfers, concealed losses, and even continued to surreptitiously withdraw funds. is alleged. to Alameda as the company is heading for bankruptcy.

Two top business partners of Bankman-Fried, former Alameda CEO Caroline Ellison and FTX co-founder Gary Wang, are defendants in civil lawsuits filed by the SEC and CFTC and A federal prosecutor in New York pleaded guilty to fraud charges on Wednesday. Now they are cooperating with the authorities.

Here are the 14 most notable parts of the complaints and all the documents below:

  • Fraud allegations start early. The SEC complaint states: “From the inception of FTX, Defendants and Bankman-Fried diverted FTX client funds to Alameda and continued to do so until the collapse of FTX in November 2022.”
  • Although he openly claimed otherwise, Bankman-Fried was Alameda’s ultimate authority. From the CFTC complaint: “Bankman-Fried continued to retain control of Alameda even after leaving Alameda’s CEO position.”
  • Millions of dollars sent from FTX to Alameda were loaned to Bankman-Fried. From the SEC complaint: “Bankman-Fried also used mixed funds from Alameda to make large political donations and purchase tens of millions of dollars in Bahamian real estate for himself, his parents, and other FTX executives… Loans to Bankman-Fried, Wang and others are poorly documented and sometimes not documented at all.
  • FTX client funds went to Alameda in two ways. From the SEC complaint: “FTX was funded by client assets by directing FTX customers to deposit fiat (e.g. US Dollars) into Alameda-controlled bank accounts; and (2) allowing Alameda to withdraw from an almost unlimited ‘line of credit’ in FTX; “
  • The collateral that Alameda held for its loans was mostly FTT, a crypto token made by FTX and given to Alameda, which the hedge fund later tried to support. From the SEC complaint: “On more than one occasion, Alameda and Ellison, at Bankman-Fried’s direction, actively engaged in FTT trading to support the token price.”
  • FTX did not initially create accounts for client funds. From the CFTC complaint: “When Bankman-Fried, Wang and others launched FTX, FTX did not create the necessary bank accounts to accept and hold client assets. Instead, customers wishing to deposit “fiat” currency (i.e. traditional government-issued currency) Directed to FTX accounts to transfer fiat deposits to bank accounts owned and controlled by Alameda.”
  • Some Alameda accounts were not held in Alameda’s name. From the CFTC complaint: “Some or all of these bank accounts were opened in the name of an entity called North Dimension, a wholly owned subsidiary of Alameda registered in Delaware, and deliberately did not have a name of its own, according to knowledge and belief. It is easily identifiable with Alameda.”
  • That money was used for all kinds of things. From the SEC complaint: “Bankman-Fried later used Alameda as his personal piggy bank to purchase luxury condominiums, support political campaigns, and make private investments. Ellison used these funds for Alameda’s operations, including speculative trading strategies and service to Alameda. loan to third-party lenders.”
  • These transfers were tracked in an account not affiliated with Alameda. From the SEC complaint: “Taking the amount of customer funds sent to Alameda as an internal FTX account had the effect of hiding Alameda’s responsibility for FTX’s internal systems.”
  • Special software code has been written to facilitate the transfer of funds from FTX to Alameda. From the SEC complaint: “Wang created and participated in the creation of the software code that allowed Alameda to route FTX client funds.”
  • As the crypto crisis worsened this year, FTX’s leaders began to realize the scale of their problems. From the CFTC complaint: “At about mid-2022, FTX’s internal ledgers showed that the balance of Alameda’s fiat debt to FTX totaled approximately $8 billion, a staggering amount that exceeded FTX’s total lifetime income.”
  • Bankman-Fried tried to hide that $8 billion debt in a client account. From the CFTC complaint: “To avoid the risk, at least in part, of Alameda’s massive liability being revealed at Bankman-Fried’s direction, FTX executives have reimbursed Alameda’s approximately $8 billion in debt to a client account in Bankman-Fried’s later FTX systems. It will be referred to as “our Korean friend’s account” and/or “weird Korean account.”
  • When the crypto market began to decline, Alameda continued to use client funds, in which case it paid off its debts to outside companies. From the SEC complaint: “Billions of dollars in FTX customer funds were thus diverted to Alameda and used by Alameda to repay third-party loan obligations.”
  • FTX created an advanced risk mitigation system for customers, but did not use it on the company’s riskiest client. From the SEC complaint: “Wang and other FTX engineers, as part of the Defendants’ and Bankman-Fried’s fraud scheme, created a special feature in the software code to “exempt Alameda from the rules of the ‘risk engine’.”

Leave a Reply

Your email address will not be published. Required fields are marked *