Ms Ellison and Mr Wang pled guilty and have agreed to cooperate with the SEC’s investigation and investigations into other securities law violations and into other entities and persons relating to the alleged misconduct are ongoing.

The news comes as Mr Bankman-Fried is on route to the US after being moved into US federal custody in the Bahamas.

According to the SEC’s complaint, between 2019 and 2022, Ms Ellison, at the direction of Mr Bankman-Fried, furthered the scheme by manipulating the price of FTT, an FTX-issued exchange crypto security token, by purchasing large quantities on the open market to prop up its price. FTT served as collateral for undisclosed loans by FTX of its customers’ assets to Alameda, a crypto hedge fund owned by Mr Wang and Mr Bankman-Fried and run by Mr Ellison.

The complaint alleges that, by manipulating the price of FTT, Mr Bankman-Fried and Ms Ellison caused the valuation of Alameda’s FTT holdings to be inflated, which in turn caused the value of collateral on Alameda’s balance sheet to be overstated, and misled investors about FTX’s risk exposure.

In addition from at least May 2019 until November 2022, Mr Bankman-Fried allegedly raised billions of dollars from investors by falsely touting FTX as a safe crypto asset trading platform with sophisticated risk mitigation measures to protect customer assets and by telling investors that Alameda was just another customer with no special privileges. Meanwhile, Mr Bankman-Fried and Mr Wang improperly diverted FTX customer assets to Alameda.

SEC chair Gary Gensler said: “As part of their deception, we allege that Caroline Ellison and Sam Bankman-Fried schemed to manipulate the price of FTT, an exchange crypto security token that was integral to FTX, to prop up the value of their house of cards.

“We further allege that Ms Ellison and Mr Wang played an active role in a scheme to misuse FTX customer assets to prop up Alameda and to post collateral for margin trading.

“When FTT and the rest of the house of cards collapsed, Mr Bankman-Fried, Ms Ellison, and Mr Wang left investors holding the bag.

“Until crypto platforms comply with time-tested securities laws, risks to investors will persist. It remains a priority of the SEC to use all of our available tools to bring the industry into compliance.”

The complaint further alleges that, even as it became clear that Alameda and FTX could not make customers whole, Mr Bankman-Fried, with the knowledge of Ms Ellison and Mr Wang, directed hundreds of millions of dollars more in FTX customer funds to Alameda.

Sanjay Wadhwa, deputy director of the SEC’s Division of Enforcement, said: “As alleged, Mr Bankman-Fried, Ms Ellison, and Mr Wang were active participants in a scheme to conceal material information from FTX investors, including through the efforts of Mr Bankman-Fried and Ms Ellison to artificially prop up the value of FTT, which served as collateral for undisclosed loans that Alameda took out from FTX pursuant to its undisclosed, and virtually unlimited, line of credit.

“By surreptitiously siphoning FTX’s customer funds onto the books of Alameda, defendants hid the very real risks that FTX’s investors and customers faced.”

The SEC’s complaint charges Ms Ellison and Mr Wang with violating the anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. The SEC’s complaint seeks injunctions against future securities law violations; an injunction that prohibits Ms Ellison and Mr Wang from participating in the issuance, purchase, offer, or sale of any securities, except for their own personal accounts; disgorgement of their ill-gotten gains; a civil penalty; and an officer and director bar.

Ms Ellison and Mr Wang have consented to bifurcated settlements, which are subject to court approval, under which they will be permanently enjoined from violating the federal securities laws, the above-described conduct-based injunctions, and officer and director bars. Upon motion of the SEC, the court will determine whether and what amount of disgorgement of ill-gotten gains plus prejudgment interest and/or a civil penalty is appropriate, as well as the length of the officer and director bar and the conduct-based injunction imposed against Mr Wang.

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York also announced charges against Ms Ellison and Mr Wang.