At SBF's direction, Caroline materially misled investors that Alameda was fine. It was not.

Feature Image: Caroline Ellison’s misleading tweet on Nov 6 after Alameda’s balance sheet was leaked revealing its large dependency on FTX’s own token, FTT

Case Number: 1:22-cv-10794

Plaintiffs: Securities and Exchange Commission (the “Commission”)

Defendants: Caroline Ellison (“Ellison”) and Zixiao “Gary” Wang (“Wang”)

Filing Date: Dec 21, 2022

Location: US District Court, Southern District of New York

Filer: Jorge G. Tenreiro, David L. Hirsch (not admitted in SDNY), Ladan F. Stewart, Amy Harman Burkart, David J. D'Addio - Attorneys for the Plaintiff

FACTS

E. Even as the Scheme Was Spiraling Out of Control, Bankman-Fried and Ellison, with Wang’s Knowledge, Continued to Mislead Investors and the Public About FTX’s True Financial Condition.

103. On or about November 2, 2022, CoinDesk, a crypto news website, published an article stating that based on its review of an Alameda balance sheet it had obtained, Alameda held a large position in FTT and other FTX-associated tokens. At Bankman-Fried’s direction, Ellison responded on Twitter to reassure investors and the public that Alameda was financially sound. Ellison did so on or about November 6, 2022, tweeting that the balance sheet referenced in the CoinDesk article (and elsewhere by that point) “is for a subset of our corporate entities, we have > $10 billion of assets that aren’t reflected there.” Ellison continued: “...given the tightening in the crypto credit space this year we’ve returned most of our loans by now.”

The tweet was designed to provide false reassurance to customers by implying that Alameda had additional assets that meant its financial condition was stronger than the balance sheet suggested. At the same time, the tweet omitted the fact that the balance sheet did not accurately reflect the significant debt that Alameda owed to FTX. In contrast to the positive message in her tweet, at that point, Ellison knew, or was reckless in not knowing, that Alameda was insolvent.

104. On or about November 6, 2022, the CEO of Binance, a crypto asset trading platform, announced that “[d]ue to recent revelations that have came [sic] to light,” Binance would liquidate its FTT holdings. Binance held FTT then valued at more than $500 million, which it had received from FTX as part of Bankman-Fried’s buyout of Binance’s equity in FTX as an early round investor.

105. Binance’s announcement caused many FTX customers to withdraw their funds from FTX. Defendants and Bankman-Fried knew or were reckless in not knowing that given Alameda’s large FTT holdings, any further drop in the value of FTT threatened the solvency of FTX, given Alameda’s multi-billion-dollar liabilities. With the knowledge and consent of the Defendants, Bankman-Fried engaged in a frantic campaign to prevent this outcome by assuring investors and the public that FTX was financially sound.

106. Specifically, to prevent a collapse in the market price of FTT that Binance’s sales might cause, Ellison, at Bankman-Fried’s direction, tweeted an offer to buy Binance’s entire stake, for $22 per token:

When Ellison sent this message she knew, or was reckless in not knowing, that in order for Alameda to be able to actually purchase Binance’s FTT for $22 per token, Alameda would have to draw down additional funds from FTX itself, further extending its line of credit, or obtain funds from third- party lenders without disclosing its own tenuous financial condition. Despite this, Ellison posted the tweet in an effort to support and increase the price of FTT, again using Alameda to impact the price of FTT in furtherance of Defendants’ scheme.

107. Similarly, attempting to maintain public and investor confidence in FTX, Bankman-Fried tweeted on or about November 7, 2022: “FTX is fine. Assets are fine ... FTX has enough to cover all client holdings. We don’t invest client assets (even in treasuries). We have been processing all withdrawals, and will continue to be ....” That tweet was false and misleading, and Bankman-Fried later deleted it. Defendants and Bankman-Fried knew that FTX, at Bankman-Fried’s direction, had allowed Alameda to invest “client assets” and that Alameda had in fact done so, using FTX customer funds to make investments far riskier than “treasuries.”

108. The next day, November 8, 2022, FTX paused all customer withdrawals, and the price of FTT plummeted by approximately 80%. Alameda’s collateral on deposit was worth far less than the amount Alameda had borrowed from FTX. FTX was left with billions of dollars in effectively unrecoverable loans.

109. Facing a solvency crisis, Bankman-Fried searched for investors who could provide additional funding. On or about November 8, 2022, the CEO of Binance tweeted:

110. It only took one day, however, for Binance to decide not to acquire FTX. On or about November 9, Binance announced:

111. FTX customers withdrew approximately $5 billion from the platform that day.

112. At the same time, Bankman-Fried sought emergency funding from other

investors, including U.S. investors, to cover a shortfall at FTX of approximately $8 billion. As part of this effort, Bankman-Fried circulated a balance sheet to potential investors that listed a negative $8 billion entry labeled as a “hidden, poorly internally labeled ‘fiat@ account.’” This entry was a reference to the above-described [email protected] account and reflected FTX customer funds deposited in Alameda’s bank accounts.

113. During a meeting with Alameda employees on or about November 9, 2022, Ellison admitted that she, Bankman-Fried, Wang, and Singh were aware that FTX customer funds had been used by Alameda.

114. On the morning of November 10, 2022, confronting the implosion of FTX and Alameda, Bankman-Fried tweeted: “1) I’m sorry. That’s the biggest thing. I f*cked up, and should have done better.”(7) In the same tweet thread, Bankman-Fried announced that Alameda was “winding down trading” and soon would not trade on FTX at all. Bankman-Fried maintained that “FTX International currently has a total market value of assets/collateral higher than client deposits (moves with prices!).” And he stated, among other things, that he was trying to “raise liquidity,” claiming “[t]here are a number of players who we are in talks with, LOIs [letters of intent], term sheets, etc.”

115. The next day, November 11, 2022, Bankman-Fried resigned from FTX. Shortly thereafter, FTX and approximately 100 affiliated entities, including FTX US, filed for Chapter 11 bankruptcy protection. Wang’s employment with FTX and Ellison’s employment with Alameda were terminated on or about November 18, 2022.

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