Case 1:22-cv-10794 Document 1 Filed 12/21/22 Page 1 of 38
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`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF NEW YORK
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`CAROLINE ELLISON and
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`ZIXIAO “GARY” WANG,
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`Defendants.
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`SECURITIES AND
`EXCHANGE COMMISSION,
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`Plaintiff,
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`Civil Action No. 22-cv-10794
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`JURY TRIAL DEMANDED
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`COMPLAINT
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`Plaintiff Securities and Exchange Commission (the “Commission”), for its complaint
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`against Caroline Ellison (“Ellison”) and Zixiao “Gary” Wang (“Wang,” together with Ellison,
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`“Defendants”), alleges as follows:
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`SUMMARY
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`1.
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`From at least May 2019 through November 2022, Defendants, together with
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`Samuel Bankman-Fried (“Bankman-Fried”) and others, engaged in a scheme to defraud equity
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`investors in FTX Trading Ltd. (“FTX”), the crypto asset trading platform of which Bankman-
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`Fried and Wang were co-founders, at the same time that they were also defrauding the platform’s
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`customers.1 FTX raised more than $1.8 billion from investors, including U.S. investors, who
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`bought an equity stake in FTX believing that FTX had appropriate controls and risk management
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`measures. Unbeknownst to those investors (and to FTX’s trading customers), Bankman-Fried
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`1 Bankman-Fried was charged by the Commission on December 13, 2022, in Securities and Exchange Commission
`v. Samuel Bankman-Fried, 22-cv-10501 (S.D.N.Y.). The allegations herein are focused on the conduct and
`knowledge of Ellison and Wang, as well as Bankman-Fried. Other individuals were both aware of and participated
`in some aspects of the fraud scheme described herein.
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`Case 1:22-cv-10794 Document 1 Filed 12/21/22 Page 2 of 38
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`was orchestrating a massive, years-long fraud, diverting billions of dollars of the trading
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`platform’s customer funds for his own personal benefit and to help grow his crypto empire.
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`Defendants were active participants in the scheme and engaged in conduct that was critical to its
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`success.
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`2.
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`Throughout this period, Bankman-Fried portrayed himself as a responsible leader
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`of the crypto community. He touted the importance of regulation and accountability. He told the
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`public, including investors, that FTX was both innovative and responsible. Customers around
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`the world believed his lies, and sent billions of dollars to FTX, believing their assets were secure
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`on the FTX trading platform. But Bankman-Fried and Wang improperly diverted customer
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`assets to Alameda Research LLC and its subsidiaries (“Alameda”), the crypto asset hedge fund
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`that they had founded and co-owned and that Ellison ran. Wang created and participated in the
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`creation of the software code that allowed Alameda to divert FTX customer funds. Ellison, in
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`turn, used the misappropriated FTX customer funds for Alameda’s trading activity. And
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`Bankman-Fried used those customer funds to make undisclosed venture investments, lavish real
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`estate purchases, and large political donations.
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`3.
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`Working with Bankman-Fried, Defendants hid the scheme from FTX’s equity
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`investors, including U.S. investors, from whom FTX sought to raise billions of dollars in
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`additional funds. Bankman-Fried repeatedly cast FTX as an innovative and conservative
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`trailblazer in the crypto markets. He told investors and prospective investors that FTX had top-
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`notch, sophisticated automated risk measures in place to protect customer assets, that those assets
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`were safe and secure, and that Alameda was just another platform customer with no special
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`privileges. Defendants knew or were reckless in not knowing that these statements were false
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`and misleading. In truth, Bankman-Fried and Wang, with Ellison’s knowledge and consent, had
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`2
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`exempted Alameda from the risk mitigation measures and had provided Alameda with
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`significant special treatment on the FTX platform, including a virtually unlimited “line of credit”
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`funded by the platform’s customers.
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`4.
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`Beyond its “line of credit” with FTX, Ellison, at Bankman-Fried’s direction,
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`caused Alameda to borrow billions of dollars from third party lenders. Those loans were backed
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`in significant part by Alameda’s holdings of FTT—an illiquid crypto asset security that was
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`issued by FTX and provided to Alameda at no cost. Ellison, acting at the direction of Bankman-
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`Fried, engaged in automated purchases of FTT tokens on various platforms in order to increase
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`the price of those tokens and inflate the value of Alameda’s collateral, which allowed Alameda
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`to borrow even more money from external lenders at increased risk to the lenders and to FTX’s
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`investors and customers, all in furtherance of the scheme.
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`5.
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`While Bankman-Fried spent lavishly on office space and condominiums in The
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`Bahamas, and sank billions of dollars of customer funds into speculative venture investments, his
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`house of cards began to crumble. When prices of crypto assets plummeted in May 2022,
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`Alameda’s lenders demanded repayment on billions of dollars of loans. Despite the fact that
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`Alameda had, by this point, already taken billions of dollars of FTX customer assets, it was
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`unable to satisfy its loan obligations. Bankman-Fried, with Defendants’ knowledge, directed
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`FTX to divert billions more in customer assets to Alameda to ensure that Alameda maintained its
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`lending relationships, and that money could continue to flow in from lenders and other investors.
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`Ellison then used FTX’s customer assets to pay Alameda’s debts.
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`6.
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`Even as it was increasingly clear that Alameda and FTX could not make
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`customers whole, Bankman-Fried and Defendants continued to misappropriate FTX customer
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`funds. Through the summer of 2022, Bankman-Fried, with Defendants’ knowledge, directed
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`Case 1:22-cv-10794 Document 1 Filed 12/21/22 Page 4 of 38
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`hundreds of millions more in FTX customer funds to Alameda, which he then used for additional
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`venture investments and for “loans” to himself and other FTX executives, including Wang. All
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`the while, Bankman-Fried continued to make misleading statements to investors about FTX’s
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`financial condition and risk management. Defendants were aware that Bankman-Fried was
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`making these statements, and knew or were reckless in not knowing that they were false and
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`misleading. Even in November 2022, faced with billions of dollars in customer withdrawal
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`demands that FTX could not fulfill, Bankman-Fried and Ellison, with Wang’s knowledge, misled
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`investors from whom they needed money to plug a multi-billion-dollar hole. This brazen, multi-
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`year scheme finally came to an end when FTX, Alameda, and their tangled web of affiliated
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`entities filed for bankruptcy on November 11, 2022.
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`VIOLATIONS
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`7.
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`By engaging in the conduct set forth in this Complaint, Defendants violated
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`Section 17(a)(1) and (3) of the Securities Act of 1933 (“Securities Act”) [15 U.S.C. § 77q(a)(1)
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`and (3)]; and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C.
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`§ 78j(b)] and Rule 10b-5(a) and (c) thereunder [17 C.F.R. § 240.10b-5(a) and (c)].
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`8.
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`Unless Defendants are permanently restrained and enjoined, they will continue to
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`engage in the acts, practices, transactions and courses of business set forth in this Complaint and
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`in acts, practices, transactions and courses of business of similar type and object.
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`NATURE OF THE PROCEEDING AND RELIEF SOUGHT
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`9.
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`The Commission brings this action pursuant to the authority conferred upon it by
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`Section 20(b) of the Securities Act [15 U.S.C. § 77t(b)] and Section 21(d)(1) of the Exchange
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`Act [15 U.S.C. §§ 78u(d)(1)].
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`10.
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`The Commission seeks a final judgment: (i) permanently enjoining Defendants
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`from engaging in the acts, practices, transactions and courses of business alleged herein;
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`(ii) ordering Defendants to disgorge their ill-gotten gains and to pay prejudgment interest thereon
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`pursuant to Section 21(d)(5) and (7) of the Exchange Act [15 U.S.C. §§ 78u(d)(5) and (7)]; (iii)
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`imposing civil money penalties on Defendants pursuant to Section 20(d) of the Securities Act [15
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`U.S.C. § 77t(d)] and Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)];
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`(iv) imposing an officer and director bar on each Defendant pursuant to Section 20(e) of the
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`Securities Act [15 U.S.C. § 77t(e)] and Section 21(d)(2) of the Exchange Act [15 U.S.C.
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`§ 78u(d)(2)]; (v) prohibiting Defendants from participating in the offer or sale of securities
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`including crypto asset securities pursuant to Section 21(d)(5) of the Exchange Act [15 U.S.C.
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`§ 78u(d)(5)]; and (vi) ordering such other and further relief the Court may find appropriate
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`pursuant to Section 21(d)(5) of the Exchange Act [15 U.S.C. § 78u(d)(5)].
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`JURISDICTION AND VENUE
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`11.
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`This Court has jurisdiction over this action pursuant to Sections 20(b), 20(d) and
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`22 of the Securities Act [15 U.S.C. §§ 77t(b), 77t(d), and 77v], and Sections 21(d), 21(e), and 27
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`of the Exchange Act [15 U.S.C. §§ 78u(d), 78u(e), and 78aa]. In connection with the conduct
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`alleged in this Complaint, Defendants, directly or indirectly, made use of the means or
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`instruments of transportation or communication in, and the means or instrumentalities of,
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`interstate commerce, or of the mails.
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`12.
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`Venue is proper in the Southern District of New York pursuant to Section 22(a) of
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`the Securities Act [15 U.S.C. § 77v(a)], and Section 27 of the Exchange Act [15 U.S.C. § 78aa].
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`Among other acts, false and misleading statements that were part of the fraudulent scheme
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`alleged herein were made to investors residing in this District.
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`Case 1:22-cv-10794 Document 1 Filed 12/21/22 Page 6 of 38
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`DEFENDANTS
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`13.
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`Caroline Ellison (“Ellison”), age 28, was employed at Alameda beginning in or
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`around March 2018. Ellison was the co-CEO at Alameda from in or around October 2021 to in
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`or around August 2022, when she became the sole CEO.2 Ellison’s employment at Alameda was
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`terminated on or about November 18, 2022. Ellison, a United States citizen, resided in Hong
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`Kong and The Bahamas during the relevant period.
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`14.
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`Zixiao “Gary” Wang (“Wang”), age 29, was a co-founder and the Chief
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`Technology Officer of FTX and co-founder and 10% owner of Alameda. Wang’s employment
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`at FTX was terminated on or about November 18, 2022. During the relevant period, Wang, a
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`United States citizen, resided in Hong Kong and The Bahamas.
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`RELEVANT PARTIES AND ENTITIES
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`15.
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`Samuel Bankman-Fried (“Bankman-Fried”), age 30, was a co-founder and
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`majority owner of FTX and, prior to stepping down on November 11, 2022, its CEO. He was
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`also a co-founder and majority owner of Alameda. He resided in Hong Kong and The Bahamas.
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`16.
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`FTX Trading Ltd. (d/b/a FTX.com) (“FTX”) is an Antigua and Barbuda
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`limited corporation. FTX’s principal place of business was in Hong Kong and The Bahamas.
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`FTX operated a global crypto asset trading platform and began operations in or around May
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`2019. FTX was available to customers in most countries, but was not permitted to provide
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`services to customers in the United States and several other countries. FTX was founded by
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`Bankman-Fried, Wang, and Nishad Singh (“Singh”). On or about November 11, 2022, FTX and
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`certain of its affiliates filed Chapter 11 bankruptcy petitions in the United States Bankruptcy
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`Court for the District of Delaware, Case No. 22-11068 (Bankr. Del.).
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`2 Ellison served as CEO of Alameda Research Ltd., a subsidiary of Alameda Research LLC. For clarity, as set forth
`in paragraph 17, the complaint refers to Alameda Research LLC and its subsidiaries collectively as “Alameda.”
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`17.
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`Alameda Research LLC is a Delaware company that had operations in the
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`United States, Hong Kong, and The Bahamas. Alameda Research LLC and its subsidiaries,
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`including Alameda Research Ltd., are collectively referred to herein as “Alameda.” Alameda
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`was a quantitative trading firm specializing in crypto assets (a “crypto hedge fund”). Bankman-
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`Fried and Wang co-founded Alameda in or around October 2017, and, prior to Alameda’s
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`bankruptcy filing, had been its sole equity owners, with Bankman-Fried owning 90%, and Wang
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`owning 10%, of the company. Bankman-Fried was CEO of Alameda from its inception until in
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`or around October 2021, at which time Ellison and Sam Trabucco (“Trabucco”) became co-
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`CEOs. In or around August 2022, Ellison became the sole CEO. Alameda has filed for Chapter
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`11 bankruptcy in the United States Bankruptcy Court for the District of Delaware, Case No. 22-
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`11068 (Bankr. Del.).
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`FACTS
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`A.
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`Bankman-Fried, Actively Supported by Defendants, Created a Complex Web
`of Entities, with FTX and Alameda at Its Center.
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`18.
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`In or around October 2017, Bankman-Fried and Wang founded Alameda, a
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`quantitative trading firm specializing in crypto assets.3
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`19.
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`At inception, Alameda was focused on arbitrage trading strategies, but went on to
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`employ other strategies including market making, yield farming (pooling of crypto assets in
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`exchange for interest or other rewards), and volatility trading. Alameda also offered over-the-
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`counter trading services, and made and managed other debt and equity investments.
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`20.
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`At first, Bankman-Fried was responsible for trading operations, and Wang
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`3 Crypto assets are unique digital assets maintained on a cryptographically-secured blockchain. A blockchain or
`distributed ledger is a peer-to-peer database spread across a network of computers that records all transactions in
`theoretically unchangeable, digitally recorded data packages. The system relies on cryptographic techniques for
`secure recording of transactions. Crypto tokens may be traded on crypto asset trading platforms in exchange for
`other crypto assets or fiat currency (legal tender issued by a country).
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`handled the engineering and programming functions. Over time, Alameda hired additional
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`employees, including Singh (in or around December 2017), Ellison (in or around March 2018),
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`and Trabucco (in or around 2019). By the end of 2021, Alameda had approximately 30
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`employees. At times, Alameda shared office space and employees with FTX.
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`21.
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`Bankman-Fried remained the ultimate decision-maker at Alameda, even after
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`Ellison and Trabucco became co-CEOs in or around October 2021. Bankman-Fried directed
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`investment and operational decisions, frequently communicated with Alameda employees, and
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`had full access to Alameda’s records and databases.
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`22.
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`Ellison was a trader at Alameda during the time Bankman-Fried acted as CEO.
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`When Ellison became co-CEO in 2021, and continuing through November 2022, Ellison was
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`responsible for Alameda’s day-to-day operations. Though Ellison made some trading decisions,
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`she frequently consulted with Bankman-Fried, particularly about strategic issues and significant
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`trades.
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`23.
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`In or around 2018, Bankman-Fried began work on building a crypto asset trading
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`platform. Together with Wang and Singh, Bankman-Fried ultimately founded FTX, which
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`began operations in or around May 2019.
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`24.
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`FTX offered its customers a number of services. For example:
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`a.
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`FTX offered a “spot market,” a trading platform through which customers
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`could trade crypto assets with other FTX customers in exchange for fiat
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`currency (i.e., currency such as U.S. Dollars) or other crypto assets.
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`b.
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`FTX offered “spot margin trading” services, which allowed FTX
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`customers to trade using assets they did not have (i.e., to trade “on
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`margin”) by posting collateral in their FTX accounts and borrowing crypto
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`assets through the “spot market” on the FTX platform. FTX also allowed
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`customers to lend their crypto assets to other FTX customers who would
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`then use those crypto assets to spot trade.
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`c.
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`FTX offered an off-platform (over-the-counter or “OTC”) portal that
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`enabled customers to connect and request quotes for spot crypto assets and
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`to conduct trades.
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`25.
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`Bankman-Fried was the ultimate decision-maker at FTX from the platform’s
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`inception in or around May 2019 until he resigned as CEO on or about November 11, 2022 (“the
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`Relevant Period”). Wang and Singh were the lead engineers responsible for writing the software
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`code for FTX, including the code that allowed for the services described above.
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`26.
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`In or around January 2020, Bankman-Fried, Wang, and Singh founded FTX US, a
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`crypto asset trading platform designed primarily for customers in the United States.4
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`27.
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`Over time, Bankman-Fried expanded his holdings to include a number of
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`companies focused on making and managing private (or “venture”) investments.
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`28.
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`This interconnected web of companies grew to include over 100 separate entities,
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`with Bankman-Fried at the top and Alameda, his crypto hedge fund, at the center.
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`29.
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`Throughout the Relevant Period, in multiple public statements, Bankman-Fried
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`held himself out as a visionary leader in the crypto industry, and touted his efforts to create a
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`regulated and thriving crypto asset market. He conducted an intensive public relations campaign
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`to brand himself and his companies as honest stewards of crypto.
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`30.
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`The reality was very different: From the start, contrary to what FTX investors
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`and trading customers were told, Bankman-Fried, actively supported by Defendants, continually
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`4 FTX US is the d/b/a for a subsidiary of West Realm Shires Inc., a separate legal entity from FTX Trading Ltd. that
`provided different services. FTX US’s conduct is not the subject of the allegations in this complaint.
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`diverted FTX customer funds to Alameda and then used those funds to continue to grow his
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`empire, using billions of dollars to make undisclosed private venture investments, political
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`contributions, and real estate purchases.
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`31.
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`At the same time, throughout the Relevant Period, Bankman-Fried, with
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`Defendants’ knowledge, solicited equity investors by touting FTX’s controls and risk
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`management, ultimately raising at least $1.8 billion from investors in exchange for various
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`classes of stock in FTX through multiple fundraising rounds, including raising: (1)
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`approximately $8 million from the sale of shares of FTX Series A preferred stock, with
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`fundraising completed in or around August 2019; (2) approximately $1 billion from the sale of
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`shares of FTX Series B preferred stock, with fundraising completed in or around July 2021; (3)
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`approximately $420 million from the sale of shares of FTX Series B-1 stock, with fundraising
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`completed in or around October 2021; and (4) approximately $500 million from the sale of
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`shares of FTX Series C stock, with fundraising completed in or around January 2022. Of this
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`total, approximately $1.1 billion was invested in FTX by approximately 90 investors based in the
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`United States.
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`32.
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`For the entire span of the Relevant Period, while raising money from equity
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`investors, Bankman-Fried, and those speaking at his direction and on his behalf, with the
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`knowledge of Defendants, claimed in widely distributed public forums and directly to investors
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`that: FTX was a safe crypto asset trading platform; FTX had a comparative advantage due to its
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`automated risk mitigation procedures; and FTX and its customers were protected from other
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`customers’ losses due to FTX’s automated liquidation process. As discussed further herein,
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`these statements and others were misleading in light of Bankman-Fried’s failure to disclose to
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`FTX investors the diversion of FTX customer funds to Alameda, which he then used for his own
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`purposes, including loans to himself. Similarly, Bankman-Fried’s statements concerning the
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`separation of FTX and Alameda, made throughout the Relevant Period, were misleading because
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`he did not disclose the special treatment afforded to Alameda on FTX, including its virtually
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`unlimited “line of credit” at FTX, its ability to carry a negative balance in its FTX customer
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`account, and its exemption from FTX’s automated liquidation process—none of which any other
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`customer of the platform enjoyed, but which changed the risk profile of FTX. Defendants were
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`aware that Bankman-Fried was making false or misleading statements in order to raise money for
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`FTX from equity investors. At times, they were in close proximity to these discussions, and
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`directly or indirectly supported Bankman-Fried in providing false and misleading information to
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`investors.
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`33.
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`Bankman-Fried also misrepresented the risk profile of investing in FTX
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`throughout the Relevant Period by failing to disclose FTX’s exposure to Alameda and, relatedly,
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`that the collateral Alameda deposited on FTX consisted largely of illiquid, FTX-affiliated tokens,
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`including FTT, the price of which Alameda was actively manipulating. In addition to these
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`material omissions, Bankman-Fried also made material misrepresentations to FTX investors
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`about FTX’s risk management and its relationship with Alameda. As detailed below, Bankman-
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`Fried made these material misstatements throughout the Relevant Period, and the entire time he
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`was raising or attempting to raise funds for FTX—from the time FTX began operations in May
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`2019 through its ultimate demise in November 2022. Again, Defendants were aware that
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`Bankman-Fried was making these false or misleading statements and that he was doing so in
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`order to raise money from equity investors, and they directly or indirectly supported him in doing
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`so.
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`B.
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`34.
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`Defendants Used Alameda to Carry Out the Fraudulent Scheme.
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`Alameda (and its many subsidiaries) served a number of essential functions in
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`Bankman-Fried’s growing web of companies. For example, Alameda was the primary market
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`maker on FTX at the time of FTX’s inception in 2019. In this capacity, Alameda, at Bankman-
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`Fried’s direction, was tasked with creating liquidity on FTX to allow the platform to function
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`more efficiently. Bankman-Fried also made venture investments through an Alameda
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`subsidiary. Most crucially, Bankman-Fried used Alameda to house FTX customer assets and to
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`deploy those assets, under Bankman-Fried’s direction, to help grow his empire.
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`35.
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`From the inception of FTX, Defendants and Bankman-Fried diverted FTX
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`customer funds to Alameda, and continued to do so until FTX’s collapse in November 2022.
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`36.
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`Defendants and Bankman-Fried diverted FTX customer funds to Alameda in
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`essentially two ways: (1) by directing FTX customers to deposit fiat currency (e.g., U.S.
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`Dollars) into bank accounts controlled by Alameda; and (2) by enabling Alameda to draw down
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`from a virtually limitless “line of credit” at FTX, which was funded by FTX customer assets.
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`37.
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`As a result, there was no meaningful distinction between FTX customer funds and
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`Alameda’s own funds. Bankman-Fried and Wang thus gave Alameda and Ellison carte blanche
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`to use FTX customer assets for Alameda’s trading operations and for whatever other purposes
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`Bankman-Fried and Ellison saw fit. In essence, Bankman-Fried and Wang placed billions of
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`dollars of FTX customer funds into Alameda. Bankman-Fried then used Alameda as his
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`personal piggy bank to buy luxury condominiums, support political campaigns, and make private
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`investments, among other uses. Ellison used these funds for Alameda’s operations, including
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`speculative trading strategies and servicing Alameda’s debt to third-party lenders. Defendants
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`knew that none of this was disclosed to FTX equity investors or to the platform’s trading
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`customers.
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`i. FTX Customers Deposited Billions of Dollars into Alameda-Owned
`Bank Accounts, Which Alameda Spent on Its Own Trading Operations
`and to Expand Bankman-Fried’s Empire.
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`38.
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`From the start of FTX’s operations in or around May 2019 until at least 2021,
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`FTX customers deposited fiat currency (e.g., U.S. Dollars) into bank accounts controlled by
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`Alameda. Billions of dollars of FTX customer funds were so deposited into Alameda-controlled
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`bank accounts. Ellison was aware that Alameda was receiving FTX customer funds.
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`39.
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`At least some of these bank accounts were not in Alameda’s name, but rather in
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`the name of North Dimension Inc. (“North Dimension”), an Alameda subsidiary. North
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`Dimension’s website does not disclose any connection to Alameda. Ellison knew that Bankman-
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`Fried had directed FTX to have customers send funds to North Dimension in an effort to hide the
`
`fact that the funds were being sent to an account controlled by Alameda.
`
`40.
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`Alameda did not segregate these customer funds, but instead commingled them
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`with its other assets, and used them indiscriminately to fund its trading operations and Bankman-
`
`Fried’s other ventures.
`
`41.
`
`This multi-billion-dollar liability was reflected in an internal account in the FTX
`
`database that was not tied to Alameda but was instead called “fiat@ftx.com.” Characterizing the
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`amount of customer funds sent to Alameda as an internal FTX account had the effect of
`
`concealing Alameda’s liability in FTX’s internal systems. Defendants knew that FTX customer
`
`funds were being sent to Alameda-controlled bank accounts and that Alameda’s liability was
`
`reflected in the “fiat@ftx.com” account.
`
`42.
`
`In quarterly balance sheets that Ellison prepared, and that were provided to
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`Alameda’s third-party lenders, Alameda tracked this liability as a “loan,” but did not specify that
`
`the “loan” was from FTX. Instead, Ellison, at Bankman-Fried’s direction, combined this liability
`
`with loans Alameda had received from third-party lenders to obscure Alameda’s intertwined
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`Case 1:22-cv-10794 Document 1 Filed 12/21/22 Page 14 of 38
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`financial relationship with FTX.
`
`43.
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`Alameda was not required to pay interest on the liability reflected in the
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`“fiat@ftx.com” account.
`
`44.
`
`In 2022, FTX began trying to separate Alameda’s portion of the liability in the
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`“fiat@ftx.com” account from the portion that was attributable to FTX (i.e., to separate out
`
`customer deposits sent to Alameda-controlled bank accounts from deposits sent to FTX-
`
`controlled bank accounts). Alameda’s portion—which amounted to more than $8 billion in FTX
`
`customer assets that had been deposited into Alameda-controlled bank accounts—was initially
`
`moved to a different account in the FTX database. However, because this change caused FTX’s
`
`internal systems to automatically charge Alameda interest on the more than $8 billion liability,
`
`Bankman-Fried directed that the Alameda liability be moved to an account that would not be
`
`charged interest. This account was associated with an individual that had no apparent connection
`
`to Alameda. As a result, this change had the effect of further concealing Alameda’s liability in
`
`FTX’s internal systems.
`
`ii. The FTX Platform, By Design, Granted Special Treatment to Alameda,
`Including Features that Allowed Alameda to Divert FTX Customer
`Assets.
`
`45.
`
`In addition to receiving cash deposits directly from FTX customers, Alameda
`
`benefited from undisclosed features of the FTX platform, which were embedded in software
`
`code developed by Wang and other FTX engineers, and which allowed Alameda to divert FTX
`
`customer assets. For example:
`
`a. Negative Balance: Alameda was able to maintain a negative balance in its
`
`customer account at FTX. Bankman-Fried directed FTX engineers, including
`
`Wang, to write software code in or around August 2019, and to update it in or
`
`around May 2020, ultimately allowing Alameda to maintain a negative balance in
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`Case 1:22-cv-10794 Document 1 Filed 12/21/22 Page 15 of 38
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`its account, untethered from any collateral requirements. No other customer
`
`account at FTX was permitted to maintain a negative balance.
`
`b. Line of Credit: On multiple occasions, Bankman-Fried directed FTX engineers,
`
`including Wang, to increase the amount by which Alameda could maintain a
`
`negative balance in its account. In effect, this gave an unofficial “line of credit”
`
`to Alameda, since Alameda was able to draw down on its FTX customer account
`
`and use those funds—which were actually the funds deposited by other FTX
`
`customers—for its own trading. At Bankman-Fried’s direction, Wang and others
`
`continually raised the limit on Alameda’s “line of credit” to the point where it
`
`grew to tens of billions of dollars and effectively became limitless. No other FTX
`
`customer had a similar “line of credit.”
`
`c. Liquidation Exemption: In or around May 2020, Bankman-Fried directed FTX
`
`engineers, including Wang, to exempt Alameda from the “auto-liquidation”
`
`feature of FTX’s spot margin trading services. As a result, Alameda’s collateral
`
`could fall below the requisite margin levels without triggering the automatic
`
`liquidation of its account. Alameda was the only customer exempted from FTX’s
`
`automatic account liquidation.
`
`46.
`
`Defendants were both aware that these special privileges were afforded to
`
`Alameda—and only Alameda. Defendants were also both aware that the existence of these
`
`special privileges, which were put in place at Bankman-Fried’s direction, were hidden from
`
`FTX’s investors. These privileges permitted Alameda to draw on FTX customer assets to a
`
`virtually unlimited extent for its own uses. Because its own FTX trading account was able to
`
`maintain a negative balance of billions of dollars, unbacked by sufficient collateral—as a direct
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`Case 1:22-cv-10794 Document 1 Filed 12/21/22 Page 16 of 38
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`result of software code implemented by Wang and others—Alameda was able to divert billions
`
`of dollars in FTX customer assets. Alameda and Ellison did just that in 2022.
`
`iii.
`
`In 2022, Alameda Diverted Billions More in FTX Customer Assets.
`
`47.
`
`Starting in or around 2021, Bankman-Fried directed Ellison to have Alameda
`
`borrow billions of dollars from third-party crypto asset lending firms in order to fund Bankman-
`
`Fried’s venture investments and for his personal use. Certain of these loans included provisions
`
`permitting the lenders to demand re-payment at any time.
`
`48.
`
`In or around May 2022, as prices of crypto assets were dropping precipitously,
`
`several of these lenders demanded re-payment from Alameda. Because Alameda did not have
`
`sufficient assets to cover all of these obligations, Bankman-Fried directed Ellison to draw on
`
`Alameda’s “line of credit” from FTX, which, based on the software code that Wang had
`
`previously created, allowed Alameda to borrow virtually limitless funds from FTX. Billions of
`
`dollars of FTX customer funds were thus diverted to Alameda and used by Alameda to re-pay its
`
`third-party loan obligations.
`
`49.
`
`Because Alameda now had billions of dollars more in liability to FTX (on top of
`
`the billions of dollars reflected in the “fiat@ftx.com” account), Bankman-Fried—concerned that
`
`this enormous liability would alarm Alameda’s lenders—directed Ellison to hide this “line of
`
`credit” in Alameda’s balance sheet. Ellison did so and presented this information to lenders,
`
`knowing that it was materially misleading.
`
`50.
`
`Despite the fact that Alameda now owed FTX billions of dollars with no
`
`immediate prospects of raising capital to pay off its “line of credit,” Bankman-Fried continued to
`
`direct Ellison to draw on the Alameda “line of credit” in the summer of 2022. The customer
`
`funds diverted to Alameda were used, among other things, to provide hundreds of millions of
`
`dollars in “loans” to Bankman-Fried and other FTX executives, as well as hundreds of millions
`
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`Case