SEC reveals scheme to embezzle client funds and manipulate FTX in lawsuit

SEC reveals scheme to embezzle client funds and manipulate FTX in lawsuit

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Author: Robert Strickland
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SEC reveals scheme to embezzle client funds and manipulate FTX in lawsuit
Sam-Bankman Fried, Caroline Allison and Gary Wang spent six months covering Alameda's debts with FTX customer funds and continued to mislead investors almost right up until the bankruptcy filing

FTX executives manipulated the price of the FTT exchange's native token by buying it in large volumes on the open market and inflating its price

Allison, at Bankman-Fried's direction, was borrowing billions of dollars from third-party lenders on behalf of Alameda, secured by FTT, which the FTX exchange provided to Alameda for free.

In May 2022, when crypto-asset prices plummeted, Alameda's lenders demanded repayment of the billions in loans.

The company defaulted on its loan obligations and Bankman-Fried instructed FTX to move billions more dollars of client assets to Alameda to ensure that Alameda would retain its relationship with lenders and access to their money. Allison used FTX client assets to pay Alameda's debts.

Using special software developed by Wang, FTX management was able to conceal that customer funds were being transferred to Alameda.

The lawsuit also says that Alameda's collateral may have fallen below the required level, but there was no automatic liquidation of the account. Alameda was the only FTX customer not covered by this feature, the suit says.

The SEC alleges that even as it became increasingly clear that Alameda and FTX were unable to pay customer debts, Bankman-Fried, Ellison, and Wang continued to embezzle FTX customer funds. In the summer of 2022, Bankman-Fried funneled hundreds of millions from FTX to Alameda, and then used it, among other things, to "loan" money - to himself and other FTX executives, including Wang.

In November 2022, faced with customer demands for billions of dollars in withdrawals, exchange executives continued to defraud investors almost to the point of filing for bankruptcy.

Ellison and Wang have already pleaded guilty and are cooperating with the investigation. Sam Bankman-Fried was flown to the U.S. from the Bahamas on Dec. 21 to face trial. 

 

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