Caroline Ellison, the former chief executive of the FTX sister company Alameda Research, has agreed to plead guilty to seven offences including wire fraud, securities fraud and money laundering, according to a newly unsealed agreement with prosecutors.
The combined maximum sentence for the offences is 110 years, but Ellison’s cooperation with the investigation means she is likely to receive a substantially reduced punishment.
Alongside the newly unsealed plea deal, the Commodity Futures Trading Commission filed an amended complaint detailing the case against Ellison and the Alameda/FTX co-founder Gary Wang, incorporating their conduct alongside the previously filed charges against Sam Bankman-Fried, the founder of the FTX group.
The CFTC’s amended complaint charges Ellison with fraud and material misrepresentations in connection with the sale of digital asset commodities in interstate commerce, and charges Wang with fraud in connection with the sale of digital asset commodities in interstate commerce.
The commission claims that Wang specifically wrote features in the code underlying FTX, a cryptocurrency exchange, to allow Alameda to maintain an “essentially unlimited line of credit” on the platform. It also alleges that Ellison directed Alameda to use “billions of dollars of FTX funds, including FTX customer funds, to trade on other digital asset exchanges and to fund a variety of high-risk digital asset industry investments”. Even as she gambled Alameda customer money – received through the unlimited line of credit and other loans between FTX and Alameda – she insisted in public that the two companies were separate, the complaint charges.
The CFTC’s chairman, Rostin Behnam, said: “With today’s charges we continue to move aggressively to hold all individuals who commit fraud accountable and protect customers from additional harm and losses. In the absence of a comprehensive regulatory framework over digital assets, the CFTC will use all of its existing power and authority to protect all market participants, while ensuring the integrity of commodity markets.”
In contrast to Bankman-Fried, who was released on a $250m bail and ordered to be confined to his parents’ Palo Alto house, Ellison’s bail was set at $250,000. She will not be allowed to leave the continental United States. The plea deal protects her from further criminal charges, with the exception of potential tax violations, but doesn’t cover other potential civil prosecution from other agencies.
The CFTC’s complaint describes the situation at Alameda after FTX announced plans to sell itself to its competitor Binance, a sale that fell through and forced the exchange into bankruptcy. During an all-hands meeting, the commission alleges, “Ellison acknowledged that earlier that year, she, Bankman-Fried and other individuals had decided to use FTX customer assets to pay Alameda’s debts, and that Wang and another FTX executive were aware of this … She also explained that Alameda could access user assets without requiring FTX’s approval as the ‘structure’ allowed Alameda to ‘go negative in coins’.”
