SEC Obtains Final Consent Judgments Against Top FTX Execs

SEC Obtains Final Consent Judgments Against Two Former FTX Executives and a Former Alameda Executive

Today the SEC filed proposed final consent judgments in the U.S. District Court for the Southern District of New York as to Caroline Ellison, the former CEO of Alameda Research Ltd. (a subsidiary of Alameda Research LLC (Alameda)), Zixiao (Gary) Wang, the former Chief Technology Officer of FTX Trading Ltd. (FTX), and Nishad Singh, the former Co-Lead Engineer of FTX.

The SEC’s complaints—filed against Ellison and Wang in December 2022, and against Singh in February 2023—alleged that, from at least May 2019 through November 2022, Samuel Bankman-Fried and FTX raised more than $1.8 billion dollars from investors by falsely claiming FTX was a safe crypto asset trading platform with sophisticated automated risk mitigation measures to protect customer assets, and by telling investors that Alameda, a crypto asset hedge fund owned by Bankman-Fried and Wang, was just another platform customer with no special privileges. In reality, as alleged in the complaints, Bankman-Fried, Wang, and Singh, with Ellison’s knowledge and consent, had exempted Alameda from the risk mitigation measures and provided Alameda with a virtually unlimited “line of credit” funded by FTX’s customers. The complaints also alleged that Wang and Singh created FTX’s software code that allowed FTX customer funds to be diverted to Alameda, and that Ellison used misappropriated FTX customer funds for Alameda’s trading activity. According to the complaints, Bankman-Fried, with the knowledge of Ellison, Wang, and Singh, directed hundreds of millions of dollars more in FTX customer funds to Alameda, where these funds were used for additional venture investments and “loans” to Bankman-Fried and other FTX executives, including Wang and Singh. 

Six Individuals Charged in $41 Million Insider Trading and Market Manipulation Scheme Involving Cancer Drug and Opioid Treatment Companies

Six individuals were charged for their participation in a years-long scheme to trade securities based on material non-public information (“MNPI”), Senior Counsel Philip Lamparello announced. […]

The Insider Trading Scheme

Kim worked at an investment bank that was actively involved in multiple mergers and acquisitions of publicly traded healthcare and biopharmaceutical companies. Kim obtained MNPI about many of these pending deals, either by working on deals directly or from others who did. Kim illegally shared MNPI about at least nine of these deals with Saad Shoukat, who traded on that information by himself and through others. Saad Shoukat also tipped off others—including Arham Shoukat, Shahwaiz Shoukat, Khan, and Okonkwo—who similarly traded and profited from the MNPI. Overall, Saad Shoukat and his co-conspirators received illicit profits from the Insider Trading Scheme totaling at least $41 million.

The SEC May Make Wall Street Analysts Corrupt Again

Research analysts didn’t act as truth-tellers but as IPO co-marketers with their investment-banking colleagues. Bankers could influence analysts’ guidance and the timing of their reports to boost investment-banking fees. It was an outrage.

New York’s Attorney General Eliot Spitzer discovered the worst of these abuses and failures in the wake of investors losing billions in the dot-com bubble. Prodded by the investigation, the Securities and Exchange Commission in 2003 required banks to separate their research and banking operations under a far-reaching legal agreement known as the Global Research Analyst Settlement. The SEC chairman at the time, William Donaldson, said that research analysts had become “cheerleaders” for banks’ investments. He was right.

Earlier this year, a group of banks filed motions to terminate the Global Settlement. They claimed that other regulations made the 2003 rule redundant. This month the SEC agreed to scrap the settlement, citing a need for “lower compliance friction.” But the Global Settlement isn’t redundant—that’s why banks are eager to avoid the regulation.

Securities Litigation Reform Act’s Success Debatable 30 Years In

Defense attorneys are mixed on whether the law has had the impact its proponents hoped for: using new processes to blunt the pressure for stock issuers to settle in the face of class securities fraud allegations.

“The PSLRA has accomplished what it was designed to do, and that was to give defendants and courts the ability to weed out at the pleading stage those cases that might have arguable merit and those that don’t have any merit,” said Dechert LLP’s Joni Jacobsen.

“I would describe the Act as a major success,” Joseph Grundfest, a Stanford Law School professor who was involved in the negotiations for the PSLRA, said via email. “It brought a level of discipline and order to the process that was previously lacking.” […]

Before the law, “all a plaintiff had to do was get through a motion to dismiss,” and suddenly a corporation faced the risk of a “cataclysmic result,” including defense costs and a potential trial judgment, said Jonathan Polkes of White & Case LLP.

Thirty years later, “it’s déjà vu all over again. Everything I just described in the past tense is in the present tense, everything. Abuse of discovery; outrageous, ginned-up damages,” Polkes said. “The PSLRA has lost a lot of its force.”

Trump’s pardons wipe out payments to defrauded victims

By the time a federal judge in 2023 sentenced convicted fraudster Trevor Milton to four years in prison, Salt Lake City businessman Liejo Supoto had long given up hope of recovering the more than $100,000 he had invested in Milton’s hydrogen-powered truck company.

Supoto didn’t know that a federal law requires certain criminal offenders to pay what’s called restitution to compensate their victims for losses. In Milton’s case, prosecutors argued that the former CEO of Nikola should pay investors $660 million.

But before a judge had the chance to calculate and order restitution, President Donald Trump pardoned Milton — which in addition to sparing him any time behind bars, wiped away any financial penalties.