110 Years In Jail For FTX’s Ellison?
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So with Sam Bankman-Fried now in the United States and due in court in New York later today, we also have the news that Caroline Ellison, the (amphetamine loving) head of Alameda, along with Ziaxiao “Gary” Wang, one of the two other FTX co-founders, have pleaded guilty to criminal charges and are co-operating with prosecutors.
Ellison has pleaded guilty to 7 criminal counts.
Including wire fraud and conspiracy to commit securities fraud and money laundering. Which collectively carry a maximum sentence of 110 years.
Meanwhile the SEC has also charged Ellison and Wang, with their complaint giving more detail about the interactions between FTX and Alameda. In essence, either FTX customers sent cash direct to bank accounts controlled by Alameda, or Alameda took FTX customer assets via an essentially unlimited line of credit, backed only by the in house FTT token (basically an IOU presented as a digital “asset”).
There is a lot to unpack for ODD practitioners as the FTX fiasco continues to evolve.
For the audit – How did Prager Metis, FTX’s courageous auditor, get comfortable that FTX was a going concern if its primary asset was, it appears, a related party receivable from Alameda?
Of course, that’s before we remember that John Ray, the new FTX CEO, has said that accounting and recordkeeping at FTX was non-existent. It’s a puzzle how any audit opinion could have become reached if there were no books and records to audit.
Then, we have a leadership team who lied about related party transactions at every turn. For ODD:
- Does an asset manager have related parties, such as a broker dealer, or a separate pool of capital traded just for insiders?
- Is the manager transparent about the nature of the transactions undertaken, especially cross trades?
- Is the related entity audited with financials available to investors?
- Lastly, is the related entity regulated?
Conflicts can become disclosed, and conflicts can become managed. However, conflicts always have the potential to disadvantage investors.
Written by Chris Addy
Founder & CEO of Castle Hall Diligence
Castle Hall is an industry leader in operational, investment risk and cyber due diligence. I lead a team of professionals focused on independent, expert due diligence across hedge funds, fund of funds, private equity structures and other alternative investment products worldwide.
Chris also served as chair of the prestigious Capital Market Policy Council of the CFA Institute.
The CMPC is a committee within the CFA Institute, drawing on a global membership of 12 CFA Charterholders. The Capital Markets Policy Council works with the Capital Markets Policy Group staff. To provide guidance on financial market regulatory and policy issues. All from the perspective of what is best for markets, investors, and clients. The CMPC also assists staff with perspectives on research. And advocacy positions developed in response to critical issues in the capital markets.
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110 Years In Jail For FTX’s Ellison?
