Caroline Ellison, former chief govt officer of Alameda Analysis LLC, heart, arrives at court docket in New York, US, on Tuesday, Oct. 10, 2023.
Yuki Iwamura | Bloomberg | Getty Photos
In sentencing FTX founder Sam Bankman-Fried to a 25-year jail sentence on Thursday, Decide Lewis Kaplan cited testimony from Caroline Ellison, an ex-girlfriend of the defendant and early recruit into his crypto enterprise.
“I preserve coming again to Ms. Ellison’s testimony that he knew it was fallacious,” Kaplan mentioned on the sentencing listening to in downtown Manhattan. “He knew it was prison.”
Ellison was the star witness for the Division of Justice in its prosecution of Bankman-Fried. She agreed to a plea deal in December 2022, a month after FTX spiraled out of business.
As a part of her testimony on the prison trial late final yr, Ellison equipped the federal government and the jury with textual content messages, paperwork and secret recordings that finally helped result in Bankman-Fried’s conviction on all seven fees towards him.
Manhattan U.S. Legal professional Damian Williams mentioned in a press release after the sentencing on Thursday that Bankman-Fried’s “deliberate and ongoing lies demonstrated a brazen disregard for his prospects’ expectations and disrespect for the rule of regulation, all in order that he may secretly use his prospects’ cash to increase his personal energy and affect.”
Ellison, who ran FTX’s sister hedge fund Alameda Analysis, 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.
Although Ellison faces comparable sentencing pointers to Bankman-Fried, she’s anticipated to obtain a much more lenient sentence attributable to her position as a cooperating witness.
Caroline Ellison is questioned as Sam Bankman-Fried watches throughout his fraud trial earlier than U.S. District Decide Lewis Kaplan over the collapse of FTX, the bankrupt cryptocurrency change, at Federal Court docket in New York Metropolis, 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 Avenue, the place Bankman-Fried received his begin in finance. Bankman-Fried had reportedly satisfied the Stanford grad to ditch her Wall Avenue gig and be part of Alameda, when the hedge fund was nonetheless in its authentic Bay Space 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 finally to the Bahamas, as Bankman-Fried repeatedly shifted headquarters for his crypto corporations.
Michael Lewis wrote about Ellison in his guide, “Going Infinite,” which coated Bankman-Fried’s rise and fall. In 2021, Ellison was promoted to CEO of Alameda, a job for which, based on Lewis’s reporting, neither Ellison nor Bankman-Fried discovered her notably effectively suited.
“Caroline sensed that, whilst Sam promoted her to CEO of Alameda Analysis, he disapproved of her job efficiency — and she or he shared his opinion,” Lewis wrote.
Lewis shared an excerpt from one of many memos that Ellison had despatched Bankman-Fried. “It seems like I am doing a a lot worse job managing Alameda than you’d should you have been engaged on it full-time,” she wrote.
In April 2021, Ellison tweeted about “common amphetamine use” in a thread that additionally talked concerning the “herculean” effort it took for her to get off of her sofa and go for a hike.
Court docket filings present that Ellison’s compensation paled compared to different prime executives. Of the $3.2 billion in payouts to the change’s founders and different senior staff, FTX’s head of engineering Nishad Singh obtained $587 million, co-founder Gary Wang received $246 million and $2.2 billion went to Bankman-Fried. Ellison obtained $6 million.
A few of Ellison’s non-public diary entries have been leaked by Bankman-Fried to the New York Occasions, which printed a report about them final July, months earlier than the trial. The act finally landed Bankman-Fried again in jail after Decide Lewis Kaplan revoked his bail for alleged witness tampering.
In a Google doc from February 2022 shared with the Occasions, Ellison wrote, “I’ve been feeling fairly sad and overwhelmed with my job…On the finish of the day I am unable to wait to go dwelling and switch off my cellphone and have a drink and get away from all of it.”
She added, “It does not actually really feel like there’s an finish in sight.”
‘Making an attempt to repair issues’
However it was within the courtroom that jurors received to listen to Ellison for the primary time.
U.S. Legal professional Thane Rehn mentioned throughout the trial that Bankman-Fried “was utilizing her as a entrance” when “in actuality, he was nonetheless calling the pictures at Alameda.” Over the course of her multi-day testimony, Ellison helped prosecutors construct a story that she was appearing on the path of Bankman-Fried in serving to him steal buyer cash from FTX and utilizing it to assist prop up Alameda, which was struggling within the wake of the crypto winter.
Ellison mentioned Bankman-Fried was nonetheless CEO of Alameda when the funneling of cash started. She mentioned she was beneath the impression that it was FTX buyer cash as a result of the sums exceeded the change’s earnings and the quantity of capital it had raised.
In mid-2021, when FTX purchased fairness within the firm again from rival change and early investor Binance, FTX used $1 billion in buyer funds for the transaction, Ellison testified.
Ellison mentioned she thought-about resigning from Alameda at varied factors from 2019 to November 2022. There have been issues lengthy earlier than the alleged prison habits came about.
On one among her Google Docs, Ellison had a bit entitled “limiting components in scaling,” which she mentioned 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 really feel like neither Trabucco nor I has been doing an ideal job of pushing on stuff,” she wrote. “We’re within the mode of sustaining established order and attempting to repair issues.”
By way of the comingling of operations between FTX and Alameda, Ellison admitted on the witness stand that the 2 corporations did not have a correct “Chinese language wall” separating the companies.
Throughout her testimony, Ellison largely averted eye contact with Bankman-Fried, staring down at her fingers between questions and often flipping her hair over her left shoulder. Bankman-Fried additionally typically seemed away, with fingers clenched.
Ellison advised the jury that her breakup with Bankman-Fried within the spring of 2022 affected communications between the 2 of them. They might speak largely over Sign regardless of dwelling in the identical residence, and so they largely averted one another exterior of labor.
Danielle Sassoon, the assistant U.S. lawyer representing the federal government, advised Decide Kaplan that a number of instances “the defendant has laughed, visibly shaken his head, and scoffed,” which she mentioned could possibly be having an impact on Ellison “given the historical past of this relationship, the prior makes an attempt to intimidate her, the facility dynamic, their romantic relationship.”
Caroline Ellison, former chief govt officer of Alameda Analysis LLC, arrives to court docket in New York, US, on Thursday, Oct. 12, 2023.
Bloomberg | Bloomberg | Getty Photos
Secret recordings and texts
Of the lots of of things entered into proof throughout the trial, a financial institution of messages on encrypted app Sign was among the many most calamitous for Bankman-Fried.
The federal government offered a collection of Sign exchanges involving Bankman-Fried, Ellison, Wang and different prime execs. In a single such change, 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 are relying closely on textual content messages despatched amongst FTX and Alameda Analysis executives within the case towards Sam Bankman-Fried.
Supply: SDNY
She wrote, “a number of folks internally asking me whether or not they need to proceed to make statements to exterior events like ‘Alameda is solvent.’ ought to i recommend they stall as an alternative? simply stall on responding to their messages? or what?”
That day, FTX issued a pause on all buyer withdrawals.
The next day, Ellison once more seemed to the group for steering about the right way to deal with an all-hands assembly for Alameda’s roughly 30 staff.
Ellison’s proposal was to inform them, “Alameda might be going to wind down” and that there was “no stress” to remain however assist with “stuff like ensuring our lenders receives a commission” can be “tremendous appreciated.”
Bankman-Fried recommended she say one thing about there “being a way forward for some kind for many who are excited.”
Prosecutors are relying closely on textual content messages despatched amongst FTX and Alameda Analysis executives within the case towards Sam Bankman-Fried.
Supply: SDNY
Ellison ended up divulging much more than that within the employees assembly, a secret recording of which was performed for the jury.
“Alameda borrowed a bunch of cash,” which it used to make investments, Ellison mentioned on the assembly. However as crypto costs fell, “FTX had a shortfall of person funds” after which “customers began withdrawing their funds” and so they “realized they might not have the ability to proceed.”
When she was requested by a staffer whose thought it was to plug Alameda’s mortgage losses with FTX buyer cash, she mentioned, “Um, Sam, I assume,” and giggled.
“FTX mainly at all times allowed Alameda to, like, borrow person funds, so far as I do know,” Ellison mentioned.
