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Caroline Ellison, former chief government officer of Alameda Analysis LLC, heart, arrives at court docket in New York, US, on Tuesday, Oct. 10, 2023.
Yuki Iwamura | Bloomberg | Getty Pictures
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 improper,” 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 into chapter 11.
As a part of her testimony on the legal trial late final yr, Ellison equipped the federal government 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 towards him.
Manhattan U.S. Legal professional 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 prospects’ expectations and disrespect for the rule of regulation, all in order that he might secretly use his prospects’ cash to broaden 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 as a result 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 Avenue, the place Bankman-Fried acquired his begin in finance. Bankman-Fried had reportedly satisfied the Stanford graduate to ditch her Wall Avenue gig and be a part of Alameda, when the hedge fund was nonetheless in its unique 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 in the end 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 workers, FTX’s head of engineering, Nishad Singh, obtained $587 million, co-founder Gary Wang acquired $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 in the end landed Bankman-Fried again in jail after 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 telephone and have a drink and get away from all of it.”
She added, “It would not actually really feel like there’s an finish in sight.”
‘Attempting to repair issues’
However it was within the courtroom that jurors acquired to listen to Ellison for the primary time.
U.S. Legal professional Thane Rehn stated in the course of 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 performing on 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 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 customer funds for the transaction, Ellison testified.
Ellison said she considered resigning from Alameda at various points from 2019 to November 2022.
On one of her Google Docs, Ellison had a section entitled “limiting factors in scaling,” which she said referred to things that were holding back Alameda. The first thing she listed was management, including a comment on 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 terms of the commingling of operations between FTX and Alameda, Ellison admitted on the witness stand that the two firms didn’t have a proper “Chinese wall” separating the businesses.
During her testimony, Ellison mostly avoided eye contact with Bankman-Fried, staring down at her hands between questions and frequently flipping her hair over her left shoulder. Bankman-Fried also often looked away, with hands clenched.
Ellison told the jury that her breakup with Bankman-Fried in the spring of 2022 affected communications between the two of them. They would talk mostly over Signal despite living in the same apartment, and they largely avoided each other outside of work.
Danielle Sassoon, the assistant U.S. attorney representing the government, told Kaplan several times “the defendant has laughed, visibly shaken his head, and scoffed,” which she said could be having an effect on Ellison “given the history of this relationship, the prior attempts to intimidate her, the power dynamic, their romantic relationship.”
Caroline Ellison, former chief executive officer of Alameda Research LLC, arrives to court in New York, US, on Thursday, Oct. 12, 2023.
Bloomberg | Bloomberg | Getty Images
Secret recordings and texts
Of the hundreds of items entered into evidence during the trial, a bank of messages on encrypted app Signal was among the most calamitous for Bankman-Fried.
The government presented a series of Signal exchanges involving Bankman-Fried, Ellison, Wang and other top execs. In one such exchange, from Nov. 8, 2022, Ellison appealed to Bankman-Fried and other members of the inner circle, asking for help on optics and public messaging.
Prosecutors relied heavily on text messages sent among FTX and Alameda Research executives in the case against 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 customer withdrawals.
The following day, Ellison again looked to the group for guidance about how to handle an all-hands meeting for Alameda’s roughly 30 employees.
Ellison’s proposal was to tell them, “Alameda is probably going to wind down” and that there was “no pressure” to stay but help with “stuff like making sure our lenders get paid” would be “super appreciated.”
Bankman-Fried suggested she say something about there “being a future of some sort for those who are excited.”
Prosecutors relied heavily on text messages sent among FTX and Alameda Research executives in the case against Sam Bankman-Fried.
Source: SDNY
Ellison ended up divulging a lot more than that in the staff meeting, a secret recording of which was played for the jury.
“Alameda borrowed a bunch of money,” which it used to make investments, Ellison said at the meeting. But as crypto prices 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 asked by a staffer whose idea it was to plug Alameda’s loan losses with FTX customer money, she said, “Um, Sam, I guess,” and giggled.
“FTX basically always allowed Alameda to, like, borrow user funds, as far as I know,” Ellison said.
