Court Entered SEC and CFTC Orders Against Two FTX Insiders

A federal judge entered parallel civil judgments and consent orders against former Alameda Research chief executive Caroline Ellison and FTX co-founder Zixiao “Gary” Wang on December 23, 2022, giving immediate legal effect to settlements with the Securities and Exchange Commission and Commodity Futures Trading Commission.

The orders were consequential because Ellison and Wang were senior insiders in the failure of FTX and its affiliated trading firm, Alameda. Their settlements moved two major civil cases beyond untested allegations: the CFTC orders expressly established their liability under federal commodities law, while the SEC judgments imposed enforceable securities-law injunctions. Monetary remedies and portions of the sanctions process remained unresolved.

The December 23 action followed complaints announced by both regulators on December 21. It was distinct from the criminal guilty pleas Ellison and Wang had entered on December 19 and from the public disclosure of those pleas on December 21. The civil orders neither sentenced the defendants nor resolved the government’s cases against FTX founder Samuel Bankman-Fried or the corporate defendants.

What the CFTC orders established

U.S. District Judge P. Kevin Castel entered CFTC consent orders finding Wang liable on Count I of the agency’s amended complaint and Ellison liable on Counts I and II. The orders permanently restrained both defendants from violating the cited antifraud provisions of the Commodity Exchange Act and CFTC Regulation 180.1.

The CFTC’s amended complaint alleged that Wang created software features giving Alameda an effectively unlimited credit line on FTX and exemptions from ordinary controls, including the exchange’s automatic-liquidation process. It alleged that Ellison directed Alameda’s use of FTX funds, including customer assets, and made misleading statements about the relationship between the two businesses.

Those allegations should not be attributed indiscriminately to every defendant. The December 23 findings and conclusions applied to Ellison or Wang as specified in their respective consent orders and were not binding on the remaining parties.

The orders resolved liability without a trial but did not calculate restitution, disgorgement or civil monetary penalties. The court reserved those remedies for later determination upon a CFTC motion or another proposed consent order. Consequently, the December 23 record did not establish a payment amount, collection schedule or customer recovery.

Parallel securities-law judgments

In the SEC case, Castel entered separate judgments permanently enjoining Ellison and Wang from future violations of Section 10(b) of the Securities Exchange Act and Rule 10b-5, as well as Section 17(a) of the Securities Act. The judgments also addressed restrictions on securities-related conduct and service as an officer or director of certain public issuers.

The SEC had alleged that Ellison helped manipulate the market price of FTT, the exchange token issued by FTX, and that Wang created code enabling Alameda to divert customer assets. The regulator further alleged that both participated in concealing Alameda’s privileged treatment and FTX’s resulting exposure from investors.

The SEC settlements were bifurcated. The court retained authority to determine disgorgement, prejudgment interest and civil penalties, along with specified durations for remaining restrictions. Entry of the December 23 judgments therefore did not establish a complete financial resolution or a universal legal classification for FTT or other digital assets.

Why the orders mattered

The development showed federal agencies using conventional antifraud statutes across different parts of the same cryptocurrency failure. The SEC focused on alleged deception of securities investors and conduct involving FTT, while the CFTC addressed fraud connected with digital-asset commodities and derivatives activity.

That overlap did not create comprehensive federal regulation of cryptocurrency exchanges. It demonstrated that conduct involving exchange software, affiliated trading firms and customer assets could trigger multiple existing enforcement regimes.

As of December 23, the verified conclusion was limited but important: two central FTX and Alameda insiders were subject to enforceable civil judgments and injunctions, and their CFTC liability had been established by consent. Monetary remedies, customer recoveries and the liability of other defendants remained open.