Throughout a tumultuous 2022, the digital currency and
blockchain space saw a number of significant investigation,
litigation, and enforcement matters as regulators continue their
laser focus on the industry. This Year in Review, authored by
members of Goodwin’s leading Digital Currency and Blockchain team, recaps
the most significant litigation and enforcement developments from
the past year.
SIGNIFICANT DEVELOPMENTS IN 2022
BlockFi’s SEC Settlement, Relationship With 3AC and
Reliance on FTX Leads to Bankruptcy Filing
BlockFi Lending LLC (“BlockFi:) consistently made headlines
in 2022. It began in February 2022, when the U.S. Securities and
Exchange Commission (“SEC”) charged BlockFi with failing to register the
offers and sales of its crypto lending product. In this
first-of-its-kind action, the SEC also charged BlockFi with
violating the registration provisions of the Investment Company Act
of 1940.
To settle the SEC’s charges, BlockFi agreed to pay a $50
million penalty; cease its unregistered offers and sales of the
lending product BlockFi Interest Accounts; and attempt to bring its
business within the provisions of the Investment Company Act within
60 days. To resolve parallel state actions announced the same day,
BlockFi agreed to pay an additional $50 million in fines to 32
states to settle similar charges. BlockFi’s parent company also
announced its intention to register the offer and sale of a new
lending product under the Securities Act of 1933. To date, BlockFi
has not been able to successfully register.
Then, in June 2022, BlockFi was confronted with a liquidity
crisis caused by the collapse of crypto hedge fund Three Arrows
Capital (“3AC”). In response, Sam Bankman-Fried, then-CEO
of FTX Trading Ltd. (“FTX”), offered BlockFi a liquidity
life raft in the form of a $400 million credit line, which allowed
BlockFi to continue its operations. But once FTX’s own
liquidity issues were revealed, the BlockFi credit line
disappeared. As a result, BlockFi voluntarily filed for Chapter 11
bankruptcy protection on November 28, 2022. Documents from the
bankruptcy proceeding reveal that BlockFi had $415.9 million of its
assets tied up with FTX and an additional $831.3 million in loans
to Alameda Research LLC (“Alameda”).
As described further herein, BlockFi’s challenges over the
past year demonstrate both the regulatory attention being paid to
crypto products and how the interconnectedness of the crypto
ecosystem can cause reverberations throughout the industry.
Terraform Labs’ Collapse Leads to Market Crash and Interpol
Red Notice
In May 2022, the algorithmic stablecoin of Terraform Labs,
terraUSD (“UST”), lost its $1 peg. As UST token holders
lost confidence, the value of UST’s companion token LUNA, which
was meant to stabilize UST’s price, also fell precipitously.
LUNA went from a high of almost $120 a token in March 2022 to being
essentially worthless by May 16, after LUNA holders engaged in the
crypto equivalent of a bank run.
Developed in 2018 by Stanford grad and former Apple and Google
engineer Do Kwon, UST is a stablecoin that derives its value from
algorithms linked to value of LUNA, as opposed to being backed by
cash reserves or other tangible assets. The algorithm was designed
to mint more LUNA to stabilize price if the value of UST were to go
above $1, and vice versa. Under the model, holders could always
redeem 1 UST to 1 LUNA. A series of events led to the depegging of
UST, including large dumps of UST on Terra’s lending protocol,
Anchor, and a stablecoin exchange protocol, Curve, which resulted
in large amounts of LUNA being minted; failed attempts to defend
the peg with BTC loans and buybacks; and, finally, the loss of
investor confidence, resulting in a huge sell-off and swift drop in
the price of LUNA. The crash wiped out tens of billions of dollars
in value from the crypto markets and set off a panic cross the
industry. In particular, the crash of LUNA contributed to the
downfall of 3AC, once a high-profile crypto hedge fund. The demise
of the fund, in turn, severely affected a number of crypto lenders,
including BlockFi, from whom it had borrowed billions of
dollars.
In September 2022, the Seoul Southern District Prosecutor’s
Office issued arrest warrants for Kwon and other close affiliates,
including the former head of research at Terra, Nicholas Platias,
and staff member Han Mo. The individuals face charges of fraud and
market manipulation in violation of South Korea’s Capital
Markets Act, which regulates investment products. Interpol issued a
Red Notice of Do Kwon’s arrest, but he has yet to be
apprehended. He is currently believed to be hiding in Serbia.
Bankruptcy Judge Rules Celsius Network Owns Users’
Interest-Bearing Crypto Accounts
On June 12, 2022, Celsius Network (“Celsius”), a
cryptocurrency platform that offered, among other things,
interest-bearing cryptocurrency accounts through its Earn program,
announced it was pausing all customer withdrawals, swaps, and
transfers, citing “extreme market conditions.” The
following month, in July 2022, Celsius commenced voluntary Chapter
11 bankruptcy proceedings in the US Bankruptcy Court. In its
initial bankruptcy filings, Celsius stated that it had anywhere
between $1 billion and $10 billion in assets and liabilities and
more than 100,000 creditors.
In September 2022, to fund its obligations to its secured
creditors, Celsius sought to sell approximately $18 million worth
of stablecoins from customers’ high-interest Earn accounts.
After a series of disputes between the company and its customers
over the ownership of customers’ deposited funds, the federal
bankruptcy judge presiding over the Chapter 11 proceedings ruled
that cryptocurrencies deposited into Celsius’ interest-bearing
accounts belong to the network, not to customers. The court cited
Celsius’ “unambiguous” terms of conditions, whereby
any cryptocurrency assets deposited into Earn accounts became
Celsius’ property. In particular, Celsius’
“clickwrap” terms of use-which the court found to
constitute an enforceable contract between Celsius and its
customers-specifically provided that customers “grant Celsius
… all right and title to such Eligible Digital Assets, including
ownership rights” and the “right … to pledge,
re-pledge, hypothecate, rehypothecate, sell, lend, or otherwise
transfer or use any amount of such Digital Assets … with all
attendant rights of ownership . . . and to use or invest such
Digital Assets in Celsius’ full discretion.” For
additional discussion of the implications of this opinion, see
“Who Owns Digital Assets When a Cryptocurrency
Platform Files Bankruptcy? The Terms of Use Answer the
Question.”
According to the decision, Celsius can not only sell those
stablecoins, but it also legally owns all cryptocurrencies
currently sitting in customers’ Earn accounts. The court’s
ruling affects approximately 600,000 accounts that held assets
valued at $4.2 billion. These Earn customers will be treated as
unsecured creditors in Celsius’ bankruptcy and consequently
will stand in line for repayment behind Celsius’
higher-priority debts.
The decision highlights the importance-for both companies and
the investing public-of understanding the ownership rights that may
attach to platform deposits. While the decision related to digital
assets in a bankrupt debtor may be one of first impression and is
instructive in how custodial assets may be treated in other
bankruptcy proceedings unfolding in the industry, including FTX,
Voyager, and BlockFi, the underlying legal principles of contract
law are not novel.
DOJ Charges Insider Trading in Nonfungible Tokens
On June 1, 2022, the Department of Justice (“DOJ”) brought charges against Nathaniel Chastain, a
former product manager at the OpenSea trading platform, for
allegedly using OpenSea’s confidential business information to
inform his trading in non-fungible tokens (“NFTs”).
According to the indictment, Chastain would purchase NFTs that, by
virtue of his position at that company, he knew would soon be
featured on OpenSea’s homepage. Chastain allegedly knew that
the value of the NFTs would increase significantly after they were
featured. He took steps to conceal these purchases by using digital
currency and anonymous OpenSea accounts to acquire the NFTs.
Chastain would then allegedly sell the NFTs after they were
featured, earning substantial profits. Based upon this alleged
conduct, the indictment charged Chastain with one count of wire
fraud and one count of money laundering, both of which carry a
maximum sentence of 20 years.
In August 2022, Chastain filed a motion to dismiss the
indictment. First, Chastain attacked the sufficiency of the
evidence against him on both counts. With respect to wire fraud, he
argued that the allegations were insufficient because confidential
business information regarding which NFTs were to be featured was
not technically “property” within the meaning of the
statute. With respect to money laundering, he argued that because
the Ethereum blockchain on which he executed the transactions is
public, the DOJ cannot show the transactions were, in compliance
with 18 U.S.C. § 1956(a)(1)(B)(i), “designed in whole or
in part … to conceal or disguise the nature, the location, the
source, the ownership, or the control of the proceeds.”
Second, Chastain attacked the sufficiency of the indictment,
arguing that he could not be charged with “insider
trading” because the DOJ did not allege that the NFTs were
either securities or commodities.
In an order issued on October 21, 2022, Judge Jesse Furman of
the Southern District of New York denied Chastain’s motion. First, Judge
Furman found that while prosecutors may not be able ultimately to
prove that the business information regarding NFTs is
“property” or that Chastain engaged in money laundering
conduct, those arguments are not appropriate to resolve on a motion
to dismiss and must instead be presented to a jury. Second, Judge
Furman stated that the wire fraud section under which Chastain was
charged did not require the government prove that any security or
commodity was at issue because the statute (18 U.S.C. § 1343)
never refers to securities or commodities. Accordingly, the
indictment’s allegations were sufficient.
The importance of the court’s order is twofold. Primarily,
it demonstrates the DOJ’s willingness to pursue illicit trading
activities or market manipulation in digital assets without taking
the step of alleging that the assets are securities or commodities.
However, the order also reveals some potential weaknesses in the
government’s theories. As Judge Furman concedes, Chastain’s
first two arguments-one of which hinges on the concept of property
and the other of which hinges on the public nature of the
blockchain-“have some force.”
Regardless of the outcome, this action should cause crypto
companies throughout the industry to reexamine what might be
considered material nonpublic information in the possession of its
employees and adjust their conflict of interest and trading
policies to mitigate the risks inherent in the misuse of such
information.
3AC Collapse Triggers Bankruptcy Proceedings and
Regulators’ Scrutiny
On July 1, 2022, 3AC, a Singapore-based hedge fund focused on
digital asset investment strategies, filed for bankruptcy,
representing a stunning fall from grace. At its peak, 3AC was one
of the most prominent hedge funds in the industry. It managed
approximately $18 billion in cryptocurrency assets, which it
amassed due, in part, to early investments in successful projects
such as Ethereum and Avalanche. But in May 2022, the collapse of
UST and LUNA had ripple effects across the industry, including
contributing to 3AC’s ultimate collapse.
3AC had borrowed from institutional lenders and used funds for
large investments, including in investments in UST/LUNA, hoping to
make money on arbitrage positions. In a comment to The Wall Street
Journal in June 2022, 3AC stated that it had invested $200 million
in LUNA, but other industry reports estimated the fund’s
exposure at closer to $560 million. Regardless of the actual
amount, when LUNA failed, 3AC’s investment was rendered
worthless. And when 3AC’s lenders made a flurry of margin
calls, 3AC was unable to meet the demands; the money was not there.
The exposure to 3AC had a catastrophic impact on other crypto
lenders, many of whom suffered losses and eventually had to file
for bankruptcy.
On June 27, 2022, a court in the British Virgin Islands ordered
3AC to liquidate its assets. A few days later, in July 2022, 3AC
filed for bankruptcy under Chapter 15 of the U.S. Bankruptcy Code.
Shortly thereafter, lawyers representing 3AC’s co-founders Su
Zhu and Kyle Davies reported to the US Bankruptcy Court that the
co-founders’ physical whereabouts were unknown. To add to
3AC’s woes, according to an October 2022 report by Bloomberg,
both the Commodity Futures Trading Commission (CFTC) and SEC are
investigating whether the fund misled investors about its balance
sheet and failed to register with the two agencies. Most recently,
multiple news outlets reported on January 16, 2023, that Zhu and
Davies are seeking to raise approximately $25 million for a new
crypto exchange, called GTX, that would allow creditors to buy and
sell claims on bankrupt cryptocurrency companies, including
3AC.
DOJ and SEC Charge Insider Trading in Specific ‘Crypto
Asset Securities’
On July 21, 2022, the DOJ announced the indictment of the three
individuals on charges of wire fraud and conspiracy to commit wire
fraud arising out of an alleged scheme to trade ahead of
announcements regarding crypto assets being listed on Coinbase, a
major digital asset exchange for which one of the defendants served
as a product manager. That same day, the SEC charged the
individuals with insider trading of digital assets, based upon the
same underlying conduct.
In its initial complaint, the SEC identifies nine particular
digital assets that the SEC alleged were “crypto asset
securities” and sets forth allegations as to why each of the
nine assets constitutes an unregistered security under the test
articulated in SEC v. W.J. Howey Co., 328 U.S. 293 (1946).
It is unclear from the record whether the SEC had engaged with any
of the issuers of the identified assets prior to filings its
enforcement action. For additional discussion of the SEC’s
complaint, please see “SEC Alleges ‘Crypto Asset Securities’
Insider Trading; Case Has Significant Implications For The Digital
Asset Industry.”
In December 2022, the SEC amended its complaint, updating its
charges to allege conduct regarding “more than 60″
digital assets and described the use of surreptitious means of
transferring funds, including through anonymous pass-through
wallets and the use of WhatsApp chat exchanges on a foreign phone.
The SEC also added additional detail based upon tracing analysis of
wallet and IP addresses. In September 2022, one of the
co-defendants, Nikhil Wahi, pled guilty to conspiracy to commit
wire fraud in the criminal action. On January 10, 2023, he was
sentenced to 10 months in prison with two years’ supervised
release. On February 7, 2023, one of the other co-defendants, Ishan
Wahi, pled guilty to two counts of conspiracy to commit wire fraud
in the criminal action.
This case provides yet another example from this past year of
the DOJ’s strategy of pursuing insider trading charges in
digital assets based upon the wire fraud statutes, rather than
alleging that the underlying assets are securities or commodities.
The SEC action, on the other hand, presents another example of the
agency’s strategy of providing guidance through enforcement,
rather than engaging directly with the underlying token projects
about what constitutes a security.
CFTC Uses Novel Theories to Pursue Charges Against Members of a
DAO
In September 2022, the CFTC brought a first-of-its-kind
enforcement action, seeking to hold participating members of the
OoKi Protocol (“Ooki DAO” or the “Protocol”), a
decentralized autonomous organization (“DAO”), liable for
alleged violations of the Commodity Exchange Act (“CEA”)
and CFTC regulations. The alleged violations include failing to
register OoKi’s platform and failing to conduct required
customer due diligence. On the same date that it filed the
complaint, the CFTC announced a settlement and consent order with
the predecessor to Ooki, bZeroX, LLC, and its two founders, Tom
Bean and Kyle Kistner. The CFTC’s consent order held the two
founders of bZeroX, LLC responsible for the actions of the
Protocol. With regard to the individual participating members in
the DAO, the CFTC’s complaint attacks and tests the DAO
structure, which the CFTC alleges is an unincorporated association
comprising token holders that used their tokens to govern the
Protocol by voting for Protocol decision making. In particular, the
CFTC alleged that the DAO is an unincorporated association; that on
the basis of state law principles, individual members of an
unincorporated association can be found liable for the debts of the
association; that participating members of the DAO (i.e., token
holders that actually voted their tokens) have directed the
operations of the DAO; and that therefore those members can be held
liable for the DAO’s alleged violations of the CEA and CFTC
regulations. For additional discussion of the complaint, please see
“CFTC Attempts to Extend Liability to DAO
Participants.”
In December 2022, Judge William Orrick in the Northern District
of California permitted the CFTC to avoid traditional
“personal” service of the complaint on the OoKi DAO.
Instead, the CFTC requested that it be permitted to serve the
complaint “‘via the online mechanisms the Ooki DAO has
created to allow itself to be contacted by the public,’ namely
a ‘Help Chat Box’ and ‘an online discussion forum’
on its public website.” In making this request, the CFTC
asserted that the Ooki DAO was structured as a DAO with the intent
to thwart enforcement actions by having no person or traditional
entity that could be subject to regulatory oversight or
enforcement.
Judge Orrick issued an order granting the CFTC’s motion for
alternative service on Ooki DAO and allowing the CFTC to sue it as
an unincorporated association. Judge Orrick’s ruling had
several key takeaways:
- Judge Orrick found Ooki DAO was not just software, but rather
an unincorporated association because the DAO held the keys to
control and govern the Protocol. Under California law, an
unincorporated association can be sued. Judge Orrick rejected
arguments by amici that Ooki is a technology and not an
unincorporated association. The court found that the Protocol was
developed by individuals who controlled it, and then turned over
control of the Protocol to its token holders. Following the
reasoning of this ruling, we should expect DAOs to continue to be
sued as unincorporated associations, particularly in
California. - Judge Orrick found that the service through OoKi DAO’s Help
Chat Box and an online discussion forum on its public website
constituted both actual notice and the best notice practicable
under the circumstances. This finding was based in part on a post
appearing on OoKi DAO’s discussion forum that referenced the
litigation and discussed next steps. Judge Orrick found this to be
evidence that the DAO had received the complaint. - A prior hearing, wherein Judge Orrick ordered service on the
founders of bZeroX, LLC, also found that service on the two
founders, as individuals that who hold a token, constituted service
of the DAO.
These findings have clear implications for those interested in
becoming part of a DAO or those already part of one. It is clear
that at least one court will seek to create means to effectuate
enforcement mechanisms where none previously existed, on a DAO not
previously considered a legal entity capable of suing or being
sued, exposing individuals to liability in a manner that is
unprecedented in the space.
District Court Grants Summary Judgment Concerning Unregistered
Offering
On November 7, 2022, Judge Paul Barbadoro of the United States
District Court for the District of New Hampshire granted the
SEC’s motion for summary judgment against LBRY, Inc., a New
Hampshire-based software company that issued a digital asset called
“LBRY Credits” or “LBC” to support its
blockchain-based video sharing application.
The SEC’s complaint charges LBRY with conducting an
unregistered offering and sale of crypto asset securities, alleging
that, from at least July 2016 to February 2021, LBRY sold a
“crypto asset security” LBC to numerous investors,
including investors based in the United States, resulting in more
than $12.2 million in profits. The SEC’s motion focused
primarily on two aspects of LBRY’s alleged conduct. First, it
pointed to multiple statements made by LBRY representatives, dating
back to 2016, that discussed LBC’s “skyrocketing
value” and “long-term value proposition,” and
encouraged token holders to “hold on” to their LBC,
reasoning that the credits will “appreciate accordingly”
once LBRY further develops the project. Second, the SEC pointed to
LBRY’s retention of hundreds of millions of LBC in its own
coffers as motivating its efforts to promote and improve the value
of the blockchain for itself and LBC holders.
On summary judgment, LBRY argued that LBC is not a security but
rather an “essential component” of the LBRY blockchain;
that LBRY had expressly warned in its marketing materials that LBC
was not being offered as an investment; and that purchasers of LBC
acquired it at least in part with the intention of using the assets
for its utility on the platform. LBRY separately argued that the
SEC’s attempt to treat LBC as a security violates its right to
due process because the agency did not give LBRY “fair
notice” that its offering would be subject to the securities
laws.
The court found that the LBRY statements identified by the SEC
were representative of LBRY’s “overall messaging about the
growth potential of LBC” and reasoned that potential investors
would understand that LBRY “was pitching a speculative value
proposition for its digital token.” Furthermore, the court
found that by retaining a significant number of LBC tokens,
“LBRY made it obvious to investors that it would work
diligently to develop the network.” The court rejected
LBRY’s reliance on the disclaimers in its marketing materials,
reasoning that a disclaimer cannot undo the objective realities of
the transaction. The court similarly rejected LBRY’s arguments
about the consumptive purpose of its token, reasoning that the fact
that some token holder may have purchased for LBC’s utility
“does not change the fact that the objective realities of
LBRY’s offerings of LBC establish that it was an offering of a
security.” Finally, the court rejected LBRY’s fair notice
argument, finding that the SEC “based its claim on a
straightforward application of a venerable Supreme Court precedent
[stated in Howey] that has been applied by hundreds of
federal courts across the country for more than 70 years.”
The court found that LBRY violated the charged provisions and
reserved the determination of relief for a later date. The SEC
seeks permanent injunctive relief, disgorgement plus prejudgment
interest, and civil penalties. The court held a remedies hearing on
January 30, 2023. During the hearing, the judge indicated that he
was inclined to grant a “tier 1” fine, emphasizing that
LBRY had conducted all of its business transparently and that there
were no allegations of any fraudulent conduct. The judge also
acknowledged that, while he rejected LBRY’s notice defense, it
was not lost on the court that this was among the first actions
brought in a non-ICO case. Finally, the court said on the record
that he was not inclined to give an injunction that can be applied
to secondary market sales. The judge otherwise reserved decision to
allow the parties to engage in further discovery to support the
appropriate disgorgement amount. The court’s order will be
forthcoming.
While the LBRY decision provides additional insights for market
participants in determining which digital assets may constitute a
security, the court’s ruling is not likely to be
outcome-determinative because the assessment of each digital asset
still necessarily depends on the facts and circumstances particular
to that case. And particularly where token issuances are seldom
conducted in the model used by LBRY, this ruling is unlikely to
have direct implications of token issuers structuring their
offerings in 2023. That said, the court’s ruling in the
SEC’s favor on summary judgment will inevitably have the
practical implication of further emboldening the SEC in pursuing
Section 5 violations against other issuers, and particularly in
seeking to challenge the “fair notice” defense. On the
other hand, assuming the court’s eventual remedies ruling
confirms that the injunction will not extend to secondary market
sales, this would be a significant win for the crypto industry.
Such a ruling would lend further credence to the argument that
marketplace-based secondary transfers of these assets do not create
investment contract transactions. Notwithstanding what might be an
industry win based on this potential outcome, the positive impact
may be limited in light of the SEC’s attempts-demonstrated in
Ripple and Wahi-to create a new class of security (without any
basis in the law or rules) that they have dubbed a “crypto
asset security,” which appears to ignore the Howey
factors in favor of a newly enumerated security category applicable
to the tokens themselves.
Agencies Seek to Hold FTX and Its Executives Accountable for
Massive Fraud
In November 2022, FTX and Alameda, the digital assets companies
founded by Sam Bankman-Fried (“SBF”), suddenly collapsed.
These failures have led to numerous US and international criminal
and regulatory investigations and charges, including against SBF
individually. What follows is a summary of a few of these
actions.
Department of Justice. The US Attorney’s
Office in the Southern District of New York charged SBF with
conspiracy to commit wire fraud, wire fraud, conspiracy to commit
commodities fraud, conspiracy to commit securities fraud,
conspiracy to commit money laundering, and the unusual charge of
conspiracy to defraud the Federal Election Commission
(“FEC”) and commit campaign finance violations due to
campaign donations he allegedly made in excess of the FEC’s
contribution limits, in part from using other peoples’
identities for such donations. The government’s charges allege
an intentional scheme by SBF to steal billions of dollars of
customer funds deposited with FTX and mislead investors and lenders
to FTX and Alameda. SBF is out pending bail, and a number of other
FTX and Alameda executives are cooperating with the government.
U.S. Securities and Exchange Commission. The
SEC charged SBF based upon his alleged scheme to defraud equity
investors in FTX Trading Ltd. The nature of the alleged fraud is
that in raising approximately $1.1 billion from approximately 90
US-based investors, SBF promoted FTX as a safe, responsible crypto
asset trading platform, specifically touting FTX’s
sophisticated, automated risk measures to protect customer assets.
The complaint alleges that the representations were false and that
SBF concealed from FTX’s investors “the undisclosed
diversion of FTX customers’ funds to Alameda Research LLC, his
privately held crypto hedge fund; the undisclosed special treatment
afforded to Alameda on the FTX platform, including providing
Alameda with a virtually unlimited ‘line of credit’ funded
by the platform’s customers and exempting Alameda from certain
key FTX risk mitigation measures; and the undisclosed risk stemming
from FTX’s exposure to Alameda’s significant holdings of
overvalued, illiquid assets such as FTX-affiliated tokens.”
Additional allegations include that SBF used commingled FTX
customers’ funds at Alameda to make undisclosed venture
investments, lavish real estate purchases, and large political
donations.
The SEC complaint filed in parallel with the announcement of the
DOJ action was not a surprise, and with the filing of the
complaint, SEC Chair Gary Gensler sent another warning to crypto
platforms: “To those platforms that don’t comply with our
securities laws, the SEC’s Enforcement Division is ready to
take action.”
Commodity Futures Trading Commission. The CFTC,
not to be outdone, also filed fraud charges against SBF, FTX,
Alameda, Caroline Ellison (Alameda’s CEO), and Gary Wang
(Alameda and FTX co-founder). Of particular interest are the
allegations against Ellison and Wang. The CFTC alleges that
beginning in October 2021, Ellison was co-CEO of Alameda, later
sole CEO, and-along with SBF and others-directed Alameda to use
billions of dollars of FTX funds, including FTX customer funds, to
trade on other digital asset exchanges and to fund a variety of
high-risk digital asset industry investments. The CFTC also alleged
that Ellison made deceptive public statements, including statements
regarding the supposed separation between the operations of Alameda
and those of FTX.
Interestingly, the CFTC further alleges that Wang created
features in the code underlying the FTX trading platform that
effectively created a “back door,” which allowed Alameda
to maintain a nearly unlimited line of credit on FTX. Similarly, it
is alleged that SBF directed FTX executives, including Wang, to
create other exceptions to FTX’s standard processes that
allowed Alameda to have an unfair advantage when transacting on the
platform, thus permitting Alameda to secretly siphon FTX customer
assets from the FTX platform.
Ellison and Wang are in the process of resolving the claims
against them with the SEC and with the CFTC.
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