Caroline Ellison, former chief govt officer of Alameda Analysis LLC, heart, arrives at courtroom in New York, US, on Tuesday, Oct. 10, 2023.
Yuki Iwamura | Bloomberg | Getty Photographs
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 hold coming again to Ms. Ellison’s testimony that he knew it was flawed,” Kaplan stated on the sentencing listening to in downtown Manhattan. “He knew it was legal.”
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 legal trial late final yr, Ellison provided 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 expenses in opposition to him.
Manhattan U.S. Legal professional Damian Williams stated in an announcement 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 legislation, all in order that he may secretly use his prospects’ cash to develop 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 related sentencing tips to Bankman-Fried, she’s anticipated to obtain a much more lenient sentence on account of her function 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 trade, at Federal Courtroom in New York Metropolis, October 11, 2023 on this courtroom sketch.
Jane Rosenberg | Reuters
Ellison’s sophisticated ties to SBF
Ellison jumped into Bankman-Fried’s crypto orbit in 2017.
She’d been working as a dealer at Jane Road, the place Bankman-Fried received his begin in finance. Bankman-Fried had reportedly satisfied the Stanford grad to ditch her Wall Road 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 companies.
Michael Lewis wrote about Ellison in his book, “Going Infinite,” which covered Bankman-Fried’s rise and fall. In 2021, Ellison was promoted to CEO of Alameda, a job for which, according to Lewis’s reporting, neither Ellison nor Bankman-Fried found her particularly well 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 one of the memos that Ellison had sent 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 in regards to the “herculean” effort it took for her to get off of her sofa and go for a hike.
Courtroom filings present that Ellison’s compensation paled compared to different prime executives. Of the $3.2 billion in payouts to the trade’s founders and different senior staff, FTX’s head of engineering Nishad Singh acquired $587 million, co-founder Gary Wang received $246 million and $2.2 billion went to Bankman-Fried. Ellison acquired $6 million.
A few of Ellison’s non-public diary entries had been leaked by Bankman-Fried to the New York Instances, 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 Instances, Ellison wrote, “I’ve been feeling fairly sad and overwhelmed with my job…On the finish of the day I can not wait to go residence and switch off my telephone 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.”
‘Attempting to repair issues’
Nevertheless it was within the courtroom that jurors received to listen to Ellison for the primary time.
U.S. Legal professional Thane Rehn stated throughout the trial that Bankman-Fried “was utilizing her as a entrance” when “in actuality, he was nonetheless calling the photographs 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 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 trade’s income and the quantity of capital it had raised.
In mid-2021, when FTX purchased fairness within the firm again from rival trade and early investor Binance, FTX used $1 billion in buyer funds for the transaction, Ellison testified.
Ellison stated she thought of resigning from Alameda at numerous factors from 2019 to November 2022. There have been issues lengthy earlier than the alleged legal habits befell.
On one in every of her Google Docs, Ellison had a bit entitled “limiting components in scaling,” which she stated referred to issues that had 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 amazing job of pushing on stuff,” she wrote. “We’re within the mode of sustaining established order and making an attempt to repair issues.”
When it comes to 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 prevented eye contact with Bankman-Fried, staring down at her arms between questions and steadily flipping her hair over her left shoulder. Bankman-Fried additionally typically seemed away, with arms clenched.
Ellison instructed the jury that her breakup with Bankman-Fried within the spring of 2022 affected communications between the 2 of them. They’d speak largely over Sign regardless of dwelling in the identical residence, they usually largely prevented one another exterior of labor.
Danielle Sassoon, the assistant U.S. lawyer representing the federal government, instructed Decide Kaplan that a number of instances “the defendant has laughed, visibly shaken his head, and scoffed,” which she stated 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 courtroom in New York, US, on Thursday, Oct. 12, 2023.
Bloomberg | Bloomberg | Getty Photographs
Secret recordings and texts
Of the tons 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 introduced a collection of Sign exchanges involving Bankman-Fried, Ellison, Wang and different prime execs. In a single such trade, 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 in opposition to Sam Bankman-Fried.
Supply: SDNY
She wrote, “a number of individuals 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 steerage about how you can 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 strain” to remain however assist with “stuff like ensuring our lenders receives a commission” could be “tremendous appreciated.”
Bankman-Fried instructed she say one thing about there “being a way forward for some type for many who are excited.”
Prosecutors are relying closely on textual content messages despatched amongst FTX and Alameda Analysis executives within the case in opposition to Sam Bankman-Fried.
Supply: SDNY
Ellison ended up divulging much more than that within the workers assembly, a secret recording of which was performed for the jury.
“Alameda borrowed a bunch of cash,” which it used to make investments, Ellison stated on the assembly. However as crypto costs fell, “FTX had a shortfall of consumer funds” after which “customers began withdrawing their funds” they usually “realized they’d not be capable to proceed.”
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 assume,” and giggled.
“FTX principally at all times allowed Alameda to, like, borrow consumer funds, so far as I do know,” Ellison stated.
WATCH: Sam Bankman-Fried sentenced to 25 years in jail
