Caroline Ellison, key witness in Bankman-Fried trial, sentenced to prison
The former close associate of disgraced cryptocurrency mogul Sam Bankman-Fried was sentenced to two years in prison.
Although she confessed to playing a central role in the affair, prosecutors recommended that U.S. District Judge Lewis Kaplan, who in March sentenced Bankman-Fried to 25 years in prison, show leniency to Ellison due to her “extraordinary cooperation.” They called her testimony a “cornerstone” of the trial of her former boss and ex-boyfriend.
Her attorneys asked Kaplan to not hand a prison sentence to Ellison, who has been out on bail since December 2022. Prosecutors did not indicate a specific sentencing range, but the court’s Probation Department recommended that she be sentenced to three years of supervised release. Her charges carry a maximum sentence of 110 years in prison.
In court testimony last year, Ellison said she committed crimes at the behest of Bankman-Fried. “When I started working at Alameda, I don’t think I would have believed it if you told me that a few years later I would be sending false balance sheets to our lenders or taking customer money,” she said. “But over time it was something that I became more comfortable with when I was working there.”
Prosecutors and defense attorneys told similar stories in their memorandums to the judge before sentencing. Both sides agree that Ellison was a knowing participant in some of Bankman-Fried’s crimes, including the decision to use $1 billion of FTX customers’ money to buy back shares of FTX that Bankman-Fried had sold to rival cryptocurrency firm Binance.
Both also portray Ellison as the more sober voice compared with Bankman-Fried, saying that she warned him that he risked needing to use customers’ deposits in the event of a market downturn if he kept making billions of dollars in investments, which he then did anyway.
When Ellison’s prediction came true and the company started using customers’ money to repay investors, prosecutors say she created fraudulent balance sheets to hide what they were doing.
Still, she maintains she did not know the full extent of the fraud. At Bankman-Fried’s sentencing, the judge concluded that the onetime-mogul had defrauded investors out of $1.7 billion, his hedge fund’s lenders out of $1.3 billion and FTX customers out of $8 billion.
Ellison provided information about Bankman-Fried’s crimes that prosecutors may not have uncovered otherwise, said Rebecca Mermelstein a former federal prosecutor.
“She wasn’t the only source of information, obviously, but she was a very important one, and she let them move very quickly,” Mermelstein said before the sentencing. “You can tell that the government thinks she deserves a lot of credit for what she did.”
But Ellison took part in one of the largest financial frauds in history.
“You could see a world where she received some prison time,” said Mark Bini, a former federal prosecutor specializing in financial crime. “All that said, I think even though the crime she participated in was extraordinary, the cooperation was also extraordinary.”
Prosecutors also noted the intense scrutiny of Ellison, including public interest in her romantic relationship with Bankman-Fried, which ended before FTX collapsed.
“The Government cannot think of another cooperating witness in recent history who has received a greater level of attention and harassment …” they wrote. “Throughout, however, and certainly during her testimony, Ellison steadfastly remained candid and dedicated to telling the truth — as embarrassing as it often was for her — and in assisting with bringing the most culpable party to justice.”
Lawyers found both sides’ acknowledgment of the online vitriol directed at Ellison compelling. Bini could not recall another case where the “echo-chamber of the internet” has been cited as a factor that should impact sentencing. The prosecution’s choice to highlight that, Bini and Mermelstein said, speaks to how much Ellison endured.
“The government’s recognition … that one thing the judge should consider is the higher price she has already paid because of that whole experience, I thought that was interesting,” Mermelstein said.
Ryan Salame, a top FTX executive who pleaded guilty but did not cooperate with prosecutors, was sentenced in May to seven-and-a-half years in prison. Two other FTX leaders who pleaded guilty and assisted the government, Gary Wang and Nishad Singh, have yet to be sentenced.
Ellison’s lawyers say she is volunteering for community-service organizations and writing fiction and a math textbook as she tries to rebuild her life.
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