- Her lawyers had sought a sentence keeping her out of prison.
- Ellison’s ‘extraordinary cooperation’ was instrumental in convicting Sam Bankman-Fried, prosecutors said.
- The 29-year-old former head of Alameda is now ‘wary of going out in public.’
A US judge on Tuesday sentenced Caroline Ellison, the star witness in the trial of former FTX CEO Sam Bankman-Fried, to a 2 year term for her role in bankrupting what was one of the world’s top crypto exchanges in 2022.
Unlike Bankman-Fried, her onetime boyfriend, Ellison, 29, pleaded guilty to seven criminal counts in December, including conspiracy to commit wire and securities fraud.
Those charges could have led to a maximum prison sentence of 110 years.
Judge Lewis Kaplan said Ellison’s “very, very substantial cooperation” with prosecutors had won her a lenient sentence.
“I’ve seen a lot of cooperators in 30 years here. I’ve never seen one quite like Ms. Ellison,” the judge said, adding that he had failed to find “the slightest error of fact, the slightest inconsistency” in her testimony.
By agreeing to cooperate with federal prosecutors in New York, Ellison was one of several senior officers at FTX and Alameda Research, Bankman-Fried’s crypto hedge fund, to testify against their former boss.
SBF’s dark arts
Over three days on the witness stand last October, Ellison riveted the jury by pulling back the curtain on the fraud Bankman-Fried oversaw at FTX and Alameda, where she was CEO.
Ellison explained how Bankman-Fried unlawfully tapped customer deposits at FTX to cover up billions of dollars in losses at Alameda Research and misrepresented the fiscal strength of both companies.
These moves intensified in May and June 2022 when the bottom fell out of the crypto market and triggered a series of cascading failures of lending outfits and investment firms such as Celsius and Three Arrow Capital.
Bankman-Fried, she said, directed her and other colleagues to commit these fraudulent acts as Alameda’s balance sheet deteriorated. One major problem: much of the fund was collateralised by FTX’s token, FTT, which was cratering.
Ellison also told the jury how Bankman-Fried directed the falsification of documents to conceal the legerdemain.
On November 2, Bankman-Fried, 32, was convicted of seven counts of fraud and conspiracy. After the former crypto mogul refused to express remorse for his acts, Judge Kaplan sentenced him in March to 25 years in prison.
Bankman-Fried has appealed his conviction.
‘She regrets her role deeply and will carry shame and remorse to her grave.’
— Caroline Ellison's lawyers
In the runup to Tuesday’s hearing, Ellison’s lawyers asked Kaplan to take her testimony and time served into consideration and waive more time behind bars.
“Caroline blames no one but herself for what she did. She regrets her role deeply and will carry shame and remorse to her grave,” her defence team wrote.
She has grown “wary of going out in public” due to fear of being recognised, and “been rendered effectively unemployable,” the team wrote.
Her lawyers also accused Bankman-Fried of being manipulative during their relationship. The team reminded the court that Bankman-Fried leaked Ellison’s diary to the press in 2023.
Last week, prosecutors expressed their appreciation for Ellison’s help in convicting Bankman-Fried.
In a letter to Kaplan, they said Ellison’s “extraordinary cooperation” was “crucial to the Government’s successful prosecution” of Bankman-Fried for one of the largest financial frauds in history.
At his own sentencing hearing in March, Bankman-Fried, clad in beige prison garb and shackled at the ankles, occasionally struck a defiant tone.
Echoing his failed defence last November, he blamed FTX’s collapse on his “mismanagement” and a “liquidity crisis” rather than on outright fraud.
Ellison took a different approach.
“I want to start by saying how sorry I am,” she said. She acknowledged defrauding customers and investors, and said she struggled to live according to her own values, rather than Bankman-Fried’s.
“Ignoring that voice and speaking out would have been brave,” she said, her voice breaking. “I’m sorry I wasn’t brave.”
‘Outrageous fraud’
Cooperating witnesses can sometimes get off more easily, especially if they helped catch bigger fish.
Andrew Fastow, the CFO who helped engineer massive fraud at Enron during the late 1990s, got six years in prison after testifying about CEO Jeffrey Skilling’s role in the crime.
Speaking from the bench on Tuesday, Kaplan said there were three factors that distinguished her situation from that of Bankman-Fried.
First was her cooperation with the government, which yielded, among other things, proof that Bankman-Fried had directed her to produce multiple fraudulent balance sheets he then used to assuage nervous lenders.
“It was an outrageous fraud,” Kaplan said.
Second, she was far less culpable than the former FTX boss, according to the judge.
Ellison wasn’t motivated by greed, he said. Rather, she had been too eager to please Bankman-Fried, whom he called her “kryptonite.”
“You’re vulnerable, and you were exploited,” Kaplan said.
Third was her remorse.
An anomaly
“He’s sorry that the gamble he inappropriately took didn’t work out, and he’s sorry he got caught,” Kaplan said, referring to Bankman-Fried. “Your remorse is the real thing.”
But she had participated in one of the worst frauds in financial history, the judge continued. Cooperation should not be a “get out of jail free card,” he said.
In June 2022, Ellison discovered an anomaly in Alameda’s FTX account and shared her concerns with FTX’s Director of Engineering Nishad Singh.
In September, she told Singh she was growing worried about Alameda’s market exposure. He then relayed the message to Bankman-Fried. FTX collapsed in November 2022.
Both Singh and Ellison testified against Bankman-Fried at his trial. Singh will be sentenced on October 30.
Another cooperating witness, FTX CTO Gary Wang, is scheduled to be sentenced on November 20.
Ryan Salame, the former co-CEO of FTX’s Bahamas subsidiary, was sentenced to seven and a half years in prison in May. He is due to begin his sentence on October 13.
Kaplan said Ellison was not a threat to re-offend, and ordered that she serve her sentence at a minimum security prison as close as possible to Boston, where she was raised.
“Every part of your life has been turned inside out in public to an unprecedented degree,” he said. “Hopefully, now that’s going to relax.”
Aleks Gilbert is DL News’ New York-based DeFi correspondent. You can reach him at aleks@dlnews.com.
Updated on September 24 with additional details from the sentencing hearing.