Caroline Ellison, the ex-girlfriend of FTX ringleader Sam Bankman-Fried, was sentenced to two years for her role in the $8 billion crypto fraud.
Ellison, 29, was handpicked by Bankman-Fried to be CEO of Alameda Research, a crypto trading company that had strong ties to FTX, the crypto exchange used by every day customers before it collapsed in November 2022.
The sentence, though lenient as she was facing a maximum of 110 years, still came as a shock for experts in the legal field, most of whom believed she would get no jail time for her extreme cooperation with prosecutors.
She was the star witness at Bankman-Fried’s trial and her three days of testimony, which revealed how Alameda stole billions of dollars from FTX customers to finance risky trades and lavish spending, was ‘crucial’ in securing a conviction and a 25-year prison sentence for the fraudster, prosecutors wrote in a court filing last Tuesday.
After pleading guilty to seven charges in late 2022, including wire fraud and money laundering, her lawyers had asked that she be sentenced to three years of supervised release but no prison time.
In the lead up to her sentencing Tuesday, the court’s Probation Department had recommended that Ellison be sentenced to three years of supervised release.
Prosecutors didn’t ask for any specific sentence and bent over backwards to acknowledge her ‘extraordinary cooperation,’ signaling their openness to leniency.
Prosecutors even mentioned how Ellison was dragged through the mud in the press, with many outlets ridiculing her appearance and general demeanor throughout the blockbuster Bankman-Fried trial in Manhattan.
‘The Government cannot think of another cooperating witness in recent history who has received a greater level of attention and harassment,’ prosecutors wrote.
Prior to the sentencing, former federal prosecutor Jordan Estes cited the fact that most white collar criminals who are tried in the Southern District of New York ‘receive zero jail time.’
Josh Naftalis, also a former federal prosecutor, told CNN that prison was an unlikely destination for Ellison, considering her ‘extraordinary cooperation’ with authorities.
The days of the trial when she was on the stand consistently drew the most attendees, as she recounted the salacious details of her toxic relationship with SBF and the shockingly brazen means through which the young crypto executives at FTX and Alameda, herself included, committed one of the largest financial hoodwinks in American history.
Ellison testified that Bankman-Fried ‘directed me’ to commit fraud. She said that Bankman-Fried told her to take $14 billion from the failed crypto exchange’s customers to repay the eyewatering loans Alameda had racked up to fund its often disastrous trades.
She also said that Alameda took FTX deposits for ‘whatever’ it needed.
Part of what Ellison said Bankman-Fried instructed her to do was to draft seven different balance sheets to send to Genesis, one of Alameda’s main lenders, when it recalled its $500 million loan to Alameda in June 2022.
Many lenders were asking for their money at this time because crypto markets were in the red.
Bankman-Fried denied telling her to do this, even though prosecutors were able to show that he opened the Google document that contained the seven balance sheets.
Ellison sent ‘alternative seven’ to Genesis and others. The document inflated the value of Alameda’s assets and downplayed its liabilities to the tune of billions of dollars.
By this time, she and Bankman-Fried had broken up but they had dated from summer 2020 to summer 2021.
‘I would say the whole time we were dating he was also my boss at work which created some awkward situations,’ she said at trial, adding that ‘I wanted more from our relationship and often felt he was distant or not paying attention to me.’
Ellison found herself intertwined with the bushy-haired crypto boss years before the bankruptcy of FTX, once valued at $32 billion by venture capital firms.
Ellison, the daughter of two MIT professors, first met Bankman-Fried in the summer of 2015 while she was working at Jane Street Capital, a proprietary trading firm.
He was two years older than her and a full-fledged trader, while she had just taken an internship before her senior year at Stanford University.
In fall 2017, the two crossed paths again, meeting at a coffee shop in the San Francisco Bay Area to discuss what Bankman-Fried was working on: Alameda Research.
Ellison joined the company shortly after this in what she described as ‘a blind leap into the unknown.’
She became one of the lead traders at the fledgling crypto hedge fund, as it was sometimes called, and would relocate to the Bahamas, where FTX was headquartered.
By all accounts, she lived a spoiled life on the Caribbean island, where FTX employees were offered round-the-clock catering, free groceries, bi-weekly massages, and a full suite of cars, Financial Times reported.
She took up residence at the $30 million Orchid penthouse of the waterfront Albany resort alongside Bankman-Fried, FTX co-founder Gary Wang, chief engineer Nishad Singh, and several other roommates.
Ellison would later be promoted to Alameda co-CEO alongside Sam Trabucco in October 2021.
Trabucco stepped down from this position in August 2022, leaving Ellison with sole responsibility over the firm just months before the eventual collapse.
Ellison testified in court that she didn’t even feel she was qualified to be co-CEO, let alone the full chief executive.
‘I felt it was a big job and I wasn’t very experienced. Sam [Bankman-Fried] said there wasn’t a better person for the job,’ she testified.
She made $200,000 a year as co-CEO but was given a massive $20 million bonus in 2021.
She told the jury she first became concerned when she discovered that Alameda had loaned billions of dollars to Bankman-Fried, Gary Wang and Nishad Singh.
According to Ellison, by May 2022, those loans totaled $5 billion and they were in investments which were unlikely to be paid back.
By comparison, she only got one loan of $3.5 million which she used to fund an investment in a gambling company.
Nonetheless, despite what her gut was telling her, Ellison stayed on as Alameda’s CEO until the very end.
On the outside, FTX appeared to be a responsible titan of its industry all throughout 2022, with Bankman-Fried even appearing before Congress to advocate for more crypto regulation, something many of his peers despised him for.
‘The current U.S. landscape for the regulation of the trading of digital assets is a patchwork of federal market regulations and state-level money-transmission laws,’ he told the Senate Agricultural Committee in February 2022.
‘This patchwork of regulations increases the operational complexity of digital-asset platform operators, decreases capital efficiencies for customers, and hampers the ability of platform operators to optimize their risk-management programs.’
At the same time he was trying to make FTX appear responsible in an industry often associated with scams, Bankman-Fried was persuading celebrities to promote his company.
The most well known famous endorsers were Tom Brady, his ex-wife Gisele, comedian Larry David, tennis star Naomi Osaka, and NBA legends Steph Curry and Shaquille O’Neal.
David was featured in one of FTX’s most iconic ads that aired during Super Bowl 2022, where the grumpy comic played a historical character who makes a series of incorrect predictions. The narrative culminated with David ironically saying that he didn’t think FTX was a good investment.
At the actual Super Bowl that year, Bankman-Fried was photographed with singer Katy Perry, actor Orlando Bloom, actress Kate Hudson and Hollywood agent turned investor Michael Kives.
This façade of success, wealth and fame was all brought to a screeching halt in November 2022, when the exchange began to falter.
The first major sign of trouble that went public was when crypto news site CoinDesk published an Alameda balance sheet on November 2, 2022.
The balance sheet showed that a substantial portion of Alameda’s assets were held in FTT, FTX’s proprietary token. According to keen watchers of the crypto industry, this appeared incredibly risky because FTT was essentially a made-up currency by Bankman-Fried, yet it was serving as collateral for many of the hefty loans granted to Alameda for trading purposes.
Ellison responded to the story via Twitter, now X, on November 6, claiming there was $10 billion worth of other assets not reflected on the balance sheet CoinDesk had obtained.
She’d later testify that the tweet was ‘misleading’ and that Bankman-Fried directed her to do it.
That same day, FTX’s main competitor, Binance, announced they would be selling all of its FTT tokens, an action that would undoubtedly send the coin plummeting.
FTT was worth around $22 on November 6, and seeing this, Ellison tweeted at then Binance CEO Changpeng Zhao, also known as CZ.
She said Alameda was willing to buy all of its FTT at $22 ‘to minimize the market impact.’
Tarun Chitra, founder and CEO of risk-modeling firm Gauntlet, told Bloomberg that this tweet from Ellison in particular contributed to FTT’s downfall.
‘Market conditions across a variety of centralized exchanges that traded FTT against USD or USDC materially degraded against FTT soon after Ellison’s tweets,’ Chitra said. ‘And this led to the sharp decline in FTT that likely led to a cascade of margin calls and or liquidations for Alameda based on their balance sheet.’
In the days after this ill-advised tweet, panicking FTX customers had withdrawn approximately $6 billion from the exchange. To stop the bleeding, FTX paused withdrawals.
Zhao then put out a surprising tweet on November 7, announcing that Binance would be buying FTX.com, the non-US business, just days after it told the world that it was selling all its roughly $529 million worth of FTT.
A day later, Zhao backed out, citing ‘news reports regarding mishandled customer funds and alleged US agency investigations.’
Zhao himself would later be sentenced to four months in prison after pleading guilty in November 2023 to an anti-money laundering charge.
Ellison testified that when Binance withdrew its helping hand, Bankman-Fried tried and failed to get more capital from Saudi Crown Prince Mohammed Bin Salman.
On November 11, FTX and Alameda both filed for bankruptcy.
After the stunning fall from grace for both firms, Ellison met with prosecutors from the Southern District of New York on about 20 occasions to help them piece together the timeline of criminality.
Many of her friends, colleagues and family members sent letters to Judge Kaplan attesting to Ellison’s character.
Her parents spoke of her extraordinary commitment to giving, claiming she often donated 50 percent of whatever she made in a year to various charitable organizations.
A former colleague at FTX wrote that Ellison’s desire to make a lot of money was inextricably linked to her charitability and utilitarian ethics, claiming she wanted to accumulate wealth in order to stop artificial intelligence from causing humanity’s destruction.
The same person also said Ellison has a new romantic partner that is supportive to her, writing: ‘I believe that this new and kind environment will be good for her.’
Bankman-Fried is appealing his case, maintaining that he made ‘bad decisions’ that led to FTX’s demise, not criminal ones.
Another former FTX executive, Ryan Salame, pleaded guilty last year to federal conspiracy charges relating to unlawful political contributions and operating an unlicensed money transmitting business.
Salame, who ran FTX’s subsidiary in the Bahamas, was sentenced to seven-and-a-half years in prison.
Two other top FTX leaders, Gary Wang and Nishad Singh – who both testified against Bankman-Fried – are scheduled to be sentenced in the coming weeks.