Photo: Stephanie Keith/Bloomberg/Getty Images
On Tuesday afternoon, Judge Lewis Kaplan will sentence Caroline Ellison in the same courtroom where, hardly six months earlier, he sent Sam Bankman-Fried to prison for a quarter-century. In Ellison’s case, though, former prosecutors and legal experts believe she will receive a relatively light punishment — perhaps no time actually spent in prison. Her sentencing, though, has also become an opportunity for Ellison to do something she has so far not done: to tell the world who she really is. With Bankman-Fried in prison and her role in what really happened at FTX and Alameda all but sorted out, the story of how Ellison turned on her former boss and boyfriend — and aided a larger series of investigations into crypto crime — is emerging for the first time.
For his part, Bankman-Fried’s defense never changed. From the moment his crypto exchange FTX collapsed, the shaggy-haired erstwhile billionaire made the case that he was just as baffled as anyone else by what happened. The reason FTX imploded, he argued, was because he had entrusted his $14 billion crypto empire to his feckless employees — to people like Ellison, the novice trader he chose to be CEO of his hedge fund and who also happened to be his on-and-off girlfriend.
For roughly a year, SBF sought to publicly define Ellison, then a relative unknown even in the hyperniche world of crypto, as a bumbler and a bit of a joke. He leaked entries from her diary to the New York Times and gave embarrassing details to Michael Lewis for inclusion in Lewis’s book. In podcasts and in interviews, he suggested that Ellison was the one who was most at fault for his hedge fund stealing $9 billion in customer funds off his exchange. The picture — bolstered by old blog posts of hers about polyamory and Harry Potter — was of a woman in over her head in every way imaginable.
But, given the chance to correct the record, Ellison chose silence. She pleaded guilty to seven charges of fraud and conspiracy days after FTX went into bankruptcy, then all but disappeared from public view. When she finally appeared on the witness stand last October, it had been about a year since she and SBF had seen each other. As the star witness for the prosecution, she became SBF’s nemesis — and his opposite. While SBF’s turn on the stand would show him to be vague, difficult, and so prone to lying that Judge Kaplan would later fault him for perjuring himself, Ellison proved precise in remembering details, calm under cross-examination, and, at a key moment, deeply and tearfully regretful.
In court filings, Ellison adds new details to what we know about the chaos of the final days of FTX’s collapse and the immense pressure she was under. When FTX was rapidly losing money, Ellison — at Bankman-Fried’s direction — called Dustin Moskovitz, the Facebook co-founder, for a multibillion-dollar loan. But she also defied Bankman-Fried’s wishes when she “refused to lie” about the fraud that caused the hole to begin with. There is a reference to the final conversation that Ellison and SBF shared, when he asked her to “get assets to the Bahamas” in order to frustrate the U.S. bankruptcy proceedings. But she refused and, according to the filings, told him that she was “interested in cooperating with the U.S. government.”
In the government’s sentencing recommendation, prosecutors note her “extraordinary cooperation.” One of the key challenges in prosecuting SBF was making sense of his web of companies and holdings that was generally as messy and disheveled as he was. John Ray III, the veteran restructuring executive who took control of FTX after it fell into bankruptcy, testified that the company was run on QuickBooks — accounting software more suitable for a local sandwich shop than a global crypto empire aiming to be worth trillions. Ellison ended up sitting with federal prosecutors during at least 20 sessions that were key in deciphering otherwise inscrutable documents from Alameda and FTX — including a notorious Excel spreadsheet with seven different versions of a balance sheet that was used to defraud investors. “Caroline thereby helped the government establish its central rebuttal to Mr. Bankman-Fried’s defense of ‘good faith’ mistake,” federal prosecutors said.
There is, of course, an argument to make that Ellison’s cooperation agreement is self-serving — both in potentially limiting the punishment she faces and as well-timed revenge against her former boyfriend. “Caroline’s more guilty than SBF,” wrote Ryan Salame, the former CEO of FTX, who is set to serve seven and a half years in prison for his role in the exchange’s collapse and who has repeatedly accused her of unspecified lying. But part of what made Ellison’s testimony so powerful was not necessarily for what it revealed but what it reinforced. Ellison was the third ex-employee of SBF to testify at last fall’s criminal trial, after co-founder Gary Wang and ex-engineering head Nishad Singh. The Justice Department’s prosecutors have praised Ellison, saying she was key to their case. And surely, SBF didn’t do himself any favors by failing to make a coherent argument for his own innocence. Ellison’s attorneys have argued that her cooperation is coming out of her own regret and noted that she has even assisted in other cases that would have not been subject to her agreement with federal prosecutors — including the New York attorney general’s office and in a complex civil case in Florida that has revealed damning details about Deltec Bank, one of the key institutions for the stablecoin tether.
Ellison has made it clear so far that she is looking to live her life, at least for the short term, out of the public eye. She has asked the court to redact some personal information about where she lives and her current romantic partner, citing the oppressive media scrutiny of her life so far. According to court filings, the post-collapse story of Ellison is of a woman who has seen the errors of her ways. “Caroline blames no one but herself for what she did. She regrets her role deeply and will carry shame and remorse to her grave,” according to her sentencing submission, which asks for no additional prison time. The MIT graduate is essentially unemployable and has spent her time volunteering with different charitable organizations, giving out food at soup kitchens and meal-delivery services, teaching adult literacy classes, fostering rescue dogs, and preparing taxes for the poor. In her free time, she has supposedly written a novel that is unrelated to the facts of the FTX case.
“The question is going to be, is this fraud too massive to give her a walk? Or is this the type of person who should be rewarded for helping the government?” said Josh Naftalis, a former Manhattan federal prosecutor who specialized in white-collar prosecutions, now at law firm Pallas Partners. “I think there’s a very good chance she does not get jail time.”
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