SEC Bars FTX Execs for Decade Over Customer Fund Misuse

The U.S. Securities and Exchange Commission (SEC) announced final civil judgments on Friday against former Alameda Research chief executive Caroline Ellison and former FTX executives Gary Wang and Nishad Singh. The judgments relate to their roles in the misuse of FTX customer funds between 2019 and 2022. The three individuals consented to the judgments without admitting or denying the agency’s allegations, a common resolution in SEC enforcement actions.

As part of the settlement, all three agreed to permanent injunctions preventing future violations of key federal antifraud laws, including Section 10(b) of the Securities Exchange Act of 1934 and Section 17(a) of the Securities Act of 1933. They also accepted five-year conduct-based injunctions. Critically, the SEC imposed long-term corporate leadership prohibitions. Ellison accepted a 10-year officer-and-director bar, while Wang and Singh each agreed to eight-year bans, preventing them from holding executive or board positions for nearly a decade.

The SEC stated these measures are intended to prevent future misconduct and reinforce accountability for executives overseeing digital asset platforms that handle customer funds. This action underscores the regulator’s focus on applying traditional securities laws to the crypto sector, targeting individuals at the highest levels of failed firms like FTX and Alameda Research.

The SEC’s complaint detailed a systematic bypassing of internal safeguards at the FTX crypto exchange to benefit its closely tied hedge fund, Alameda Research. The agency alleged that Sam Bankman-Fried, Wang, and Singh, with Ellison’s knowledge and consent, exempted Alameda from standard risk mitigation measures. This provided Alameda with a virtually unlimited ‘line of credit’ funded entirely by FTX’s customers, a fundamental breach of trust.

The regulator specifically highlighted the technical execution of the scheme. It stated that Wang and Singh were responsible for developing the software code that enabled customer assets to be routed from FTX to Alameda. This code effectively created a backdoor, allowing Alameda to draw on FTX customer deposits without detection through normal channels. Meanwhile, Ellison, as CEO of Alameda, oversaw the trading activities that relied on these misappropriated funds, using customer capital to prop up the hedge fund’s risky positions.

This arrangement collapsed in November 2022, leading to one of the largest bankruptcies in crypto history. The SEC’s action solidifies the narrative that the fraud was not a mere failure of risk management but a deliberate architectural and operational scheme involving key senior figures.

These civil penalties follow the high-profile criminal prosecution of former FTX chief executive Sam Bankman-Fried, who was sentenced to 25 years in prison after being convicted on seven counts of fraud and conspiracy. Ellison, Wang, and Singh all cooperated with federal prosecutors, pleaded guilty, and testified against Bankman-Fried during his trial. Their cooperation was a pivotal factor in the government’s successful case.

Their assistance was rewarded with significantly reduced criminal sentences. Ellison, who served as the government’s key witness, received a two-year prison sentence under a plea agreement and has recently been moved to a Residential Reentry Management field office, with a scheduled release date of February 20. Wang and Singh, also cooperating witnesses, were sentenced to time served. This stark contrast in outcomes—between the cooperating lieutenants and their former boss—highlights the strategic value of early cooperation with authorities.

The legal saga continues as Bankman-Fried pursues an appeal of his conviction. A hearing was held in the U.S. Court of Appeals for the Second Circuit on November 4, with a decision pending. The SEC’s decisive civil action, meanwhile, sends a clear deterrent message to the broader crypto industry about the personal consequences for executives who fail in their fiduciary duties, even as other firms like Gemini secure new licenses and regulators in places like Singapore consider additional consumer protection safeguards.