In charging two former executives embroiled in the FTX scandal, the Securities and Exchange Commission stressed the roles played by “trustworthy public figures” in misleading Americans—a further sign that sports figures including Tom Brady and Steph Curry might become witnesses in FTX-related litigation and potentially face liability for their involvement.
Alameda Research CEO Caroline Ellison and former FTX chief technology officer Gary Wang on Wednesday were charged with defrauding FTX investors, and the SEC’s complaint, filed in the Southern District of New York, refers to FTX promoting Brady, Curry, the Miami Heat and MLB as reason to believe “FTX has the cleanest brand in crypto.”
Last month, Brady, Curry, Gisele Bundchen, Shaquille O’Neal, Udonis Haslem, David Ortiz, Trevor Lawrence, Shohei Ohtani, Naomi Osaka, Larry David and Kevin O’Leary were named defendants in one lawsuit, while Curry faces an additional lawsuit over FTX ties to the parent of the Bored Ape Yacht Club NFT series.
While spokespersons and endorsers are usually not liable for the unlawful acts of a sponsored company, these celebrities allegedly held larger roles, including as investors and customers, and arguably possessed more knowledge than an ordinary endorser and a higher duty of care. They, in turn, promoted FTX and in some instances urged their fans to take their advice and spend their money on FTX. In defense, the celebrities can argue they were not “in the know,” as evidenced by them losing money as part of FTX’s collapse.
Ellison and Wang have agreed to cooperate with federal authorities in the prosecution of FTX founder Sam Bankman-Fried, who faces up to 115 years in prison if convicted. The cooperation should lead to lighter punishments but will require Ellison and Wang to plead guilty to federal charges, share evidence and supply testimony that will paint Bankman-Fried as the architect of a wide-ranging scheme. If celebrities interacted with Ellison, Wang or Bankman-Fried, those conversations and messages could surface as evidence. The celebrities might also be called as witnesses in depositions or trials.
The SEC’s complaint also noticeably describes FTT, which was FTX’s crypto asset or “exchange token,” as a security. While there has been debate about the role of the SEC and more broadly securities law governing crypto, the SEC sees no ambiguity regarding FTX’s exchange token as an investment that could appreciate in value. “FTT,” the complaint asserts, “was offered and sold as an investment contract and, therefore, as a security.”
Bankman-Fried is accused of instructing Ellison to purchase FTT as a means of manipulating the price, which in turn inflated Alameda’s holdings—the same holdings Alameda and FTX used as collateral to borrow from lenders.
The FTX founder, who was jailed in the Bahamas until waiving his right to contest extradition earlier in the week, made his initial appearance in a New York court on Thursday. Judge Gabriel Gorenstein agreed to release Bankman-Fried on a $250 million bond, which had been negotiated by prosecutors and Bankman-Fried’s attorneys. Among other conditions of his release, Bankman-Fried will be required to wear an ankle monitoring bracelet and to stay at the California home of his parents, Stanford Law School professors Joseph Bankman and Barbara Fried.