Caroline Ellison, former SBF girlfriend, helped put FTX founder in jail

In sentencing FTX founder Sam Bankman-Fried to 25 years in prison on Thursday, Judge Lewis Kaplan cited testimony from Caroline Ellison, the defendant’s ex-girlfriend and an early recruit to his crypto enterprise.

“I keep coming back to Ms. Ellison’s testimony that she knew it wasn’t true,” Kaplan said in the course of the sentencing hearing in downtown Manhattan. “He knew it was a crime.”

Ellison was the Justice Department’s star witness in the criminal case against Bankman-Fried. It agreed to a settlement in December 2022, a month after FTX’s spiraling bankruptcy.

As a part of her testimony during her criminal trial late last yr, Ellison provided the federal government and jury with text messages, documents and secret recordings that ultimately helped convict Bankman-Fried on all seven counts against him.

Manhattan U.S. Attorney Damian Williams said in an announcement after Thursday’s verdict that Bankman-Fried’s “deliberate and constant lies demonstrated a brazen disregard for his clients’ expectations and a disregard for the rule of law, all so that he could surreptitiously exploit his clients’ rights.” money to expand your power and influence.”

Ellison, who ran sister hedge fund Alameda Research, pleaded guilty to 2 counts of wire fraud, two counts of conspiracy to commit wire fraud, conspiracy to commit commodity fraud, conspiracy to commit securities fraud and conspiracy to commit money laundering.

Although Ellison faces an analogous sentence to Bankman-Fried, she is anticipated to receive a much lighter sentence resulting from her role as a cooperating witness.

Ellison jumped into the Bankman-Fried cryptocurrency orbit in 2017.

She worked as a salesman on Jane Street, where Bankman-Fried began his profession in finance. Bankman-Fried reportedly convinced the Stanford graduate to depart her job on Wall Street and join Alameda while the hedge fund was still in its original Bay Area office.

Ellison spent years as Bankman-Fried’s girlfriend, once in some time, once in some time, and sometimes as his roommate. She followed Bankman-Fried from California to Hong Kong and ultimately to the Bahamas, as Bankman-Fried modified the headquarters of his crypto firms multiple times.

Michael Lewis wrote about Ellison in his book “Going Infinite,” which chronicles Bankman-Fried’s rise and fall. In 2021, Ellison was promoted to CEO of Alameda, and in line with Lewis’ reports, neither Ellison nor Bankman-Fried found her particularly suitable.

“Caroline sensed that even when 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 in all the notes Ellison sent to Bankman-Fried. “I feel like I’m doing a much worse job running Alameda than you would be doing running it full time,” she wrote.

In April 2021, Ellison wrote on Twitter about “regular amphetamine use” in a thread that also talked in regards to the “Herculean” effort it took for her to get off the couch and go on a visit.

Court records show Ellison’s compensation pale in comparison to other top managers. Of the $3.2 billion paid to the exchange’s founders and other senior employees, FTX engineering chief Nishad Singh received $587 million, co-founder Gary Wang received $246 million and $2.2 billion went to Bankman-Fried. Ellison received $6 million.

Bankman-Fried revealed a few of Ellison’s private diary entries to The New York Times, which he published report about them in July last yr, a couple of months before the hearing. This act resulted in Bankman-Fried returning to prison after Kaplan revoked his bail for alleged witness tampering.

In a February 2022 Google document shared with the Los Angeles Times, Ellison wrote: “I feel quite miserable and overwhelmed by my job. (…) I can’t wait to get home and turn off my phone. and have a drink and get away from it all.”

She added: “It really doesn’t feel like there’s an end in sight.”

But it was in the courtroom that jurors first heard from Ellison.

U.S. Attorney Thane Rehn said in the course of the trial that Bankman-Fried was “using her as a cover” when “in reality he was still the one calling the shots on Alameda.” Over the course of her several days of testimony, Ellison helped prosecutors construct a narrative that she acted under Bankman-Fried’s direction, helping him steal client money from FTX and use it to support the struggling Alameda. crypto winter.

Ellison said Bankman-Fried was still Alameda’s CEO when the money flow began. She said she was under the impression it was FTX client money since the amounts exceeded the exchange’s profits and the quantity of capital it had raised.

Ellison testified that in mid-2021, when FTX repurchased the corporate’s stock from rival exchange and early investor Binance, FTX used $1 billion in customer funds for the transaction.

Ellison said she considered resigning from Alameda at various times from 2019 through November 2022.

In one in all her Google Docs, Ellison included a bit titled “Factors Limiting Scaling,” which she believed addressed the aspects holding Alameda back. The very first thing she mentioned was management, including a comment about her former co-CEO Sam Trabucco.

“I feel like neither Trabucco nor I have done a great job of pushing for things,” she wrote. “We are in status quo mode and trying to solve the problems.”

Regarding the connection between FTX and Alameda’s operations, Ellison admitted on the witness stand that the 2 firms didn’t have an adequate “Chinese wall” separating the businesses.

During her testimony, Ellison mostly avoided eye contact with Bankman-Fried, looking at her hands between questions and infrequently flipping her hair over her left shoulder. Bankman-Fried also often looked away and clenched his hands.

Ellison told the jury that her breakup with Bankman-Fried in the spring of 2022 affected communication between them. Even though they lived in the identical apartment, they mostly talked on Signal and largely avoided one another outside of labor.

Danielle Sassoon, an assistant U.S. attorney representing the federal government, told Kaplan several times that “the defendant was laughing, visibly shaking his head and taunting her,” which she believed could have influenced Ellison, “given the history of this relationship, the prior attempt to intimidate her, the dynamic power, their romantic relationship.”

Of the hundreds of items entered into evidence during the trial, the message bank on the encrypted Signal app was one of the most devastating for Bankman-Frieda.

The government unveiled a series of signal exchanges involving Bankman-Fried, Ellison, Wang and other top executives. In one such conversation on November 8, 2022, Ellison appealed to Bankman-Frieda and other members of the inner circle, asking for help with optics and public communications.

She wrote, “many people have asked me internally whether they should continue to make statements to external parties along the lines of, ‘Alameda is solvent.’ should I suggest they delay instead? They just waited to respond to their messages? or what?

On that day, FTX suspended all customer withdrawals.

The next day, Ellison again asked the group for guidance on how to conduct a multi-person meeting for about 30 Alameda employees.

Ellison offered to tell them, “Alameda will probably go out of business” and that there was “no pressure” to stay, but help with “things like making sure our lenders get paid” would be “extremely appreciated.”

Bankman-Fried suggested she say something about a “confident future for those who are excited.”

Ultimately, Ellison revealed much more during a staff meeting, a secret recording of which was played to the jury.

“Alameda borrowed a lot of money” which it used for investments, Ellison said on the meeting. However, as cryptocurrency prices dropped, “FTX experienced a shortage of user funds” and then “users began withdrawing their funds” and “realized they might not have the opportunity to proceed.”

When an employee asked her who came up with the idea of ​​covering Alameda’s loan losses with FTX customers’ money, she replied, “Hmm, Sam, I assume,” and giggled.

“As far as I know, FTX has basically always allowed Alameda to lend out user funds,” Ellison said.