Caroline Ellison was sentenced to 24 months in prison by a federal judge for her role in the FTX collapse, despite helping prosecutors in the conviction of Sam Bankman-Fried, her former boss and boyfriend.
US District Judge Lewis Kaplan on Tuesday imposed the two-year sentence on the 29-year-old, calling Ellison’s cooperation “remarkable” and praising her testimony during the fraud trial.But Kaplan noted that the case was one of the “most serious” financial frauds ever committed and that her cooperation can’t be a “get out of jail free card.”
“I’ve seen a lot of cooperators in 30 years, I’ve never seen one quite like Ms Ellison,” Kaplan said before imposing the sentence. He said that punishment was necessary to deter others from similar conduct because cryptocurrency fraud “is easy and has attracted a lot of perpetrators.”
Ellison’s sentencing closes another chapter in the aftermath of the FTX collapse, which saw a group of young crypto executives and friends turn on Bankman-Fried and work with prosecutors in hopes of staying out of jail. FTX filed for bankruptcy in late 2022, exposing a yearslong fraud that prosecutors said swindled about $10 billion from customers, investors and lenders.
Like Bankman-Fried, Ellison was ordered to forfeit $11 billion as proceeds of the crime. While it’s nearly certain neither of them will be able to the repay the sum, such orders are not unusual in fraud cases. In addition, her prison sentence will be followed by three years of probation.
Ellison will surrender to serve her prison term on or after Nov. 7. She hardly reacted — looking down at the floor — when the sentence was announced, while her mother and sisters appeared to tear up as the hearing ended, wiping their eyes with tissues.
Friends turned witnesses
In the courtroom Tuesday, Ellison briefly spoke and apologized to lenders, investors, and victims who lost money as a result of her actions.
“Not a day goes by that I don’t think about all of the people I hurt,” she said while tearing up. “I’m sorry I wasn’t brave.”
Ellison was the chief executive officer of Alameda Research, a hedge fund controlled by Bankman-Fried that used FTX customer funds to make billions of dollars in risky investments. She pleaded guilty to fraud and money laundering charges.
Her punishment likely signals how Kaplan will sentence two other main cooperators in the case, FTX co-founder Gary Wang and former engineering chief Nishad Singh, later this fall. Bankman-Fried is serving 25 years in prison for orchestrating the multibillion dollar fraud at FTX.
Shame and remorse
Ellison had asked Kaplan to spare her from prison, and US probation officials had recommended she serve three years of supervised release without incarceration.
“Caroline’s first instincts weren’t to protect herself, but to try to make things right,” her lawyer Anjan Sahni told the judge Tuesday, adding that her cooperation was “a cornerstone of the trial, and marked by remarkable candor and seriousness’”
Ellison’s attorneys argued that her cooperation was key to the government’s case against Bankman-Fried, and that she immediately returned to the US when the exchange imploded in the fall of 2022. She then began speaking with prosecutors and regulators — admitting to her crimes “without pity” while directing authorities to violations they didn’t know about.
Courtroom tears
On the witness stand at Bankman-Fried’s fraud trial, Ellison described in detail how she worked with him to deceive lenders and customers and their failed attempts to stop the firm from collapsing.
She testified that she prepared seven “alternative balance sheets” at Bankman-Fried’s behest that would hide the fact that it was borrowing around $10 billion from FTX customers and had loaned about $5 billion to FTX executives and affiliated entities.
Kaplan cited that as one of the “huge pieces of evidence” in the case, noting that she remembered creating them during her interviews with prosecutors and identified relevant documents for them.
She also testified about talks between her, Bankman-Fried and other employees at FTX and Alameda about what she believed was a large bribe paid to Chinese officials in to get the government to unfreeze $1 billion in Alameda funds that had been caught up in a money-laundering investigation.
In one of the trial’s most dramatic moments, Ellison broke down in tears as she described the days leading up to FTX and Alameda’s bankruptcy in November 2022, telling a silent courtroom that it was “the worst week” of her life and something she had “been dreading for several months.” That was the last time she and Bankman-Fried would meet.
‘Exemplary cooperation’
Ellison met with the government more than 20 times, and carefully led investigators through the fraud at FTX. Bankman-Fried was found guilty of all charges against him last year after a jury deliberated for just a few hours. He has appealed his conviction and is seeking a new trial, saying the judge prevented him from mounting a proper defense.
Before the hearing, prosecutors praised her cooperation with the probe into the cryptocurrency exchange as “exemplary.” In their own memo to the judge, they said they couldn’t think of another cooperating witness in recent history “who has received a greater level of attention and harassment.”
The daughter of Massachusetts Institute of Technology economics professors, Ellison met Bankman-Fried as a summer intern at quant trading shop Jane Street Group in 2015. Three years later, over coffee in the San Francisco Bay Area, Bankman-Fried convinced her to join his new crypto trading firm Alameda Research, by telling her she could make a lot of money and give it to charity.
The case is US v Bankman-Fried, 22-cr-00673, US District Court, Southern District of New York (Manhattan).
