Caroline Ellison, former chief government officer of Alameda Research LLC, heart, arrives at courtroom in New York, US, on Tuesday, Oct. 10, 2023.Â
Yuki Iwamura | Bloomberg | Getty Images
In sentencing FTX founder Sam Bankman-Fried to a 25-year jail sentence on Thursday, Judge Lewis Kaplan cited testimony from Caroline Ellison, an ex-girlfriend of the defendant and early recruit into his crypto enterprise.
“I keep coming back to Ms. Ellison’s testimony that he knew it was wrong,” Kaplan stated at the sentencing listening to in downtown Manhattan. “He knew it was criminal.”
Ellison was the star witness for the Department of Justice in its prosecution of Bankman-Fried. She agreed to a plea deal in December 2022, a month after FTX spiraled into chapter 11.
As a part of her testimony at the legal trial late final yr, Ellison provided the authorities and the jury with textual content messages, paperwork and secret recordings that in the end helped result in Bankman-Fried’s conviction on all seven expenses in opposition to him.
Manhattan U.S. Attorney Damian Williams stated in a press release after the sentencing on Thursday that Bankman-Fried’s “deliberate and ongoing lies demonstrated a brazen disregard for his customers’ expectations and disrespect for the rule of law, all so that he could secretly use his customers’ money to expand his own power and influence.”
Ellison, who ran FTX’s sister hedge fund Alameda Research, pleaded responsible to 2 counts of wire fraud, two counts of conspiracy to commit wire fraud, conspiracy to commit commodities fraud, conspiracy to commit securities fraud and conspiracy to commit cash laundering.
Though Ellison faces comparable sentencing tips to Bankman-Fried, she’s anticipated to obtain a much more lenient sentence as a result of her position as a cooperating witness.
Caroline Ellison is questioned as Sam Bankman-Fried watches throughout his fraud trial earlier than U.S. District Judge Lewis Kaplan over the collapse of FTX, the bankrupt cryptocurrency alternate, at Federal Court in New York City, October 11, 2023 on this courtroom sketch.
Jane Rosenberg | Reuters
Ellison’s difficult ties to SBF
Ellison jumped into Bankman-Fried’s crypto orbit in 2017.
She’d been working as a dealer at Jane Street, the place Bankman-Fried acquired his begin in finance. Bankman-Fried had reportedly satisfied the Stanford graduate to ditch her Wall Street gig and be part of Alameda, when the hedge fund was nonetheless in its unique Bay Area workplace.
Ellison spent years as Bankman-Fried’s on-again, off-again girlfriend and, at instances, his roommate. She adopted Bankman-Fried from California to Hong Kong and in the end to the Bahamas, as Bankman-Fried repeatedly shifted headquarters for his crypto firms.
Michael Lewis wrote about Ellison in his e book, “Going Infinite,” which coated Bankman-Fried’s rise and fall. In 2021, Ellison was promoted to CEO of Alameda, a job for which, in keeping with Lewis’s reporting, neither Ellison nor Bankman-Fried discovered her significantly nicely suited.
“Caroline sensed that, even as Sam promoted her to CEO of Alameda Research, he disapproved of her job performance — and she shared his opinion,” Lewis wrote.
Lewis shared an excerpt from certainly one of the memos that Ellison had despatched Bankman-Fried. “It feels like I’m doing a much worse job managing Alameda than you would if you were working on it full-time,” she wrote.
In April 2021, Ellison tweeted about “regular amphetamine use” in a thread that additionally talked about the “herculean” effort it took for her to get off of her sofa and go for a hike. Â
Court filings present that Ellison’s compensation paled compared to different prime executives. Of the $3.2 billion in payouts to the alternate’s founders and different senior workers, FTX’s head of engineering, Nishad Singh, acquired $587 million, co-founder Gary Wang acquired $246 million and $2.2 billion went to Bankman-Fried. Ellison acquired $6 million.
Some of Ellison’s non-public diary entries have been leaked by Bankman-Fried to The New York Times, which printed a report about them final July, months earlier than the trial. The act ultimately landed Bankman-Fried back in jail after Kaplan revoked his bail for alleged witness tampering.
In a Google doc from February 2022 shared with the Times, Ellison wrote, “I have been feeling pretty unhappy and overwhelmed with my job. … At the end of the day I can’t wait to go home and turn off my phone and have a drink and get away from it all.”
She added, “It doesn’t really feel like there’s an end in sight.”
‘Trying to repair issues’
But it was in the courtroom that jurors acquired to listen to Ellison for the first time.
U.S. Attorney Thane Rehn stated throughout the trial that Bankman-Fried “was using her as a front” when “in reality, he was still calling the shots at Alameda.” Over the course of her multi-day testimony, Ellison helped prosecutors construct a story that she was performing at the course of Bankman-Fried in serving to him steal buyer cash from FTX and utilizing it to assist prop up Alameda, which was struggling in the wake of the crypto winter.
Ellison stated Bankman-Fried was nonetheless CEO of Alameda when the funneling of cash started. She stated she was below the impression that it was FTX buyer cash as a result of the sums exceeded the alternate’s earnings and the quantity of capital it had raised.
In mid-2021, when FTX purchased fairness in the firm again from rival alternate and early investor Binance, FTX used $1 billion in buyer funds for the transaction, Ellison testified.
Ellison stated she thought-about resigning from Alameda at numerous factors from 2019 to November 2022.
On certainly one of her Google Docs, Ellison had a piece entitled “limiting factors in scaling,” which she stated referred to issues that have been holding again Alameda. The very first thing she listed was administration, together with a touch upon her former co-CEO Sam Trabucco.
“I feel like neither Trabucco nor I has been doing a great job of pushing on stuff,” she wrote. “We’re in the mode of maintaining status quo and trying to fix problems.”
In phrases of the commingling of operations between FTX and Alameda, Ellison admitted on the witness stand that the two corporations did not have a correct “Chinese wall” separating the companies.
During her testimony, Ellison largely prevented eye contact with Bankman-Fried, staring down at her arms between questions and regularly flipping her hair over her left shoulder. Bankman-Fried additionally typically seemed away, with arms clenched.
Ellison informed the jury that her breakup with Bankman-Fried in the spring of 2022 affected communications between the two of them. They would discuss largely over Signal regardless of residing in the identical house, and they largely prevented one another exterior of labor.
Danielle Sassoon, the assistant U.S. lawyer representing the authorities, informed Kaplan a number of instances “the defendant has laughed, visibly shaken his head, and scoffed,” which she stated may very well be having an impact on Ellison “given the history of this relationship, the prior attempts to intimidate her, the power dynamic, their romantic relationship.”
Caroline Ellison, former chief government officer of Alameda Research LLC, arrives to courtroom in New York, US, on Thursday, Oct. 12, 2023.
Bloomberg | Bloomberg | Getty Images
Secret recordings and texts
Of the a whole bunch of things entered into proof throughout the trial, a financial institution of messages on encrypted app Signal was amongst the most calamitous for Bankman-Fried.
The authorities offered a sequence of Signal exchanges involving Bankman-Fried, Ellison, Wang and different prime execs. In one such alternate, from Nov. 8, 2022, Ellison appealed to Bankman-Fried and different members of the inside circle, asking for assistance on optics and public messaging.
Prosecutors relied closely on textual content messages despatched amongst FTX and Alameda Research executives in the case in opposition to Sam Bankman-Fried.
Source: SDNY
She wrote, “multiple people internally asking me whether they should continue to make statements to external parties like ‘Alameda is solvent.’ should i suggest they stall instead? just stall on responding to their messages? or what?”
That day, FTX issued a pause on all buyer withdrawals.
The following day, Ellison once more seemed to the group for steering about learn how to deal with an all-hands meeting for Alameda’s roughly 30 workers.
Ellison’s proposal was to inform them, “Alameda is probably going to wind down” and that there was “no pressure” to remain however assist with “stuff like making sure our lenders get paid” could be “super appreciated.”
Bankman-Fried prompt she say one thing about there “being a future of some sort for those who are excited.”
Prosecutors relied closely on textual content messages despatched amongst FTX and Alameda Research executives in the case in opposition to Sam Bankman-Fried.
Source: SDNY
Ellison ended up divulging much more than that in the workers assembly, a secret recording of which was performed for the jury.
“Alameda borrowed a bunch of money,” which it used to make investments, Ellison stated at the assembly. But as crypto costs fell, “FTX had a shortfall of user funds” and then “users started withdrawing their funds” and they “realized they would not be able to continue.”
When she was requested by a staffer whose concept it was to plug Alameda’s mortgage losses with FTX buyer cash, she stated, “Um, Sam, I guess,” and giggled.
“FTX basically always allowed Alameda to, like, borrow user funds, as far as I know,” Ellison stated.
