Star FTX witness Caroline Ellison sentenced to two years in prison

Former crypto executive Caroline Ellison, who testified against FTX founder Sam Bankman-Fried, has been sentenced to two years’ jail for her role in one of the largest ever financial frauds.

Caroline Ellison outside court after testifying against FTX boss Sam Bankman-Fried in 2023. Picture: Getty Images

Caroline Ellison, the star witness in FTX founder Sam Bankman-Fried’s criminal trial, was sentenced to two years in prison for her role in what prosecutors called one of the largest financial frauds in history.

Ellison, the former head of FTX’s sister investment firm, Alameda Research, pleaded guilty in late 2022 to seven fraud and money-laundering offences related to the crypto exchange’s collapse. She testified over three days that she assisted Bankman-Fried in siphoning billions of dollars of customer funds to cover Alameda’s risky bets.

Her testimony helped put her former boyfriend and boss in prison for 25 years. She had hoped her co-operation with federal prosecutors would have allowed her to avoid time behind bars.

At her sentencing in New York, Ellison, holding back tears, told the judge that she always thought of herself as a person of honesty and integrity. Those values drifted away at Alameda as she became wrapped up in what Bankman-Fried thought of her, Ellison said.

“To all the victims and everyone I harmed directly and indirectly, I am so, so sorry,” she said.

US District Judge Lewis Kaplan said he had seen a lot of cooperators in 30 years on the bench, but had never seen one quite like Ellison. She was remorseful, essential to the case and her testimony was never inconsistent, the judge said.

But, he said, in a case of this magnitude, “a get-out-of-jail-free card is not something I can see my way clear to.” Ellison, wearing a grey blazer and dusty pink dress, dropped her head and closed her eyes after Kaplan handed down her sentence, which included $11 billion in restitution. Her parents and two sisters, both teary eyed, sat behind her.

Kaplan also ordered that she forfeit $11 billion, although she likely lacks the ability to do so. Under an agreement with prosecutors, she must give the government any income she receives from selling the rights to her story.

The judge requested that prison officials send Ellison to a low-security prison near the Boston area, where her family lives. He said prison officials would determine her surrender date, but it would be after November. 7.

Fraudster crypto king Sam Bankman-Fried was sentenced to 25 years in jail.

Open to work Lawyers for Ellison told the judge that she has repeatedly sought to find a paying job, but had been unsuccessful due to her criminal case and notoriety.

She has spent time volunteering, working at a soup kitchen, fostering rescue dogs and helping low-income families in the Bronx with their taxes. She has also been contributing to a non-profit that sends books to people in prisons and jails, according to a letter the non-profit wrote to the judge. Her favourite task is writing personal notes of encouragement to inmates, the letter said.

Meanwhile, her current boyfriend, a former FTX employee, is considered a step up from Bankman-Fried. A former colleague described him as kind, honest and empathetic. Their relationship dates at least to October 2022, the colleague said.

“He finds even the small white lies of corporate politics distasteful,” the colleague, a software engineer, said in a letter to the judge.

Ellison has also used the past year to pursue another passion: writing. She completed a novella and is now working on a novel, her mother wrote in a letter to the judge. The novella is “set in Edwardian England and loosely based on her sister Kate’s imagined amorous exploits, to Kate’s great delight,” said her mother. The choice of genre is in keeping with her fondness for Jane Austen books and the Netflix drama “Bridgerton.” She is also collaborating with her parents, both economics professors, and a Harvard professor on a math textbook for advanced high-school students.

After her guilty plea, Ellison met about 20 times with the government to prepare for Bankman-Fried’s trial, prosecutors said. “The ‘what’ and ‘how’ of the crimes, as well as the ‘why,’ would have been difficult to prove without Ellison’s testimony,” prosecutors wrote.

Since the trial, she has continued to help prosecutors and regulators, according to her lawyers. She assisted the New York Attorney-General’s office with a crypto-related investigation and met with Justice Department prosecutors to provide information on people who enabled the FTX fraud and others involved in potential cryptocurrency-related criminal activity, they said.

Precocious beginnings, Ellison was an unlikely candidate to become a central figure in a criminal conspiracy.

Growing up in the Boston suburbs, she was able to read at an adult level by age 4 and spent hours working on logic puzzles with her father, according to her parents.

Family friends were surprised to see Ellison go into finance, but in college she was drawn to effective altruism, a moral philosophy that examines how to do the most good. While she shopped at the Gap and rarely wore jewellery, her mother said, she chose her career to earn more money to donate to worthy charities.

Ellison met Bankman-Fried during her summer internship at Wall Street trading firm Jane Street Capital. The couple bonded over their mutual vegetarianism during a dinner the firm held at a Brazilian steakhouse, her lawyers said.

Three years later, the pair reconnected over coffee in Berkeley, California. Also an effective altruist, Bankman-Fried convinced her that at Alameda, FTX’s sister investment fund, she could earn even more to make charitable contributions.

As part of Bankman-Fried’s inner circle of overachievers, Ellison helped FTX grow from a small start-up operating out of a California apartment to a crypto juggernaut. At the exchange’s height, it oversaw billions of dollars in funds and recruited the likes of Tom Brady and Larry David to appear in advertisements. Bankman-Fried, Ellison and other employees lived in a $30 million penthouse in the Bahamas.

The cooperator At Bankman-Fried’s trial last fall, Ellison candidly answered questions in front of a packed courtroom about her role in the crypto fraud scheme and her romantic entanglements with her then-boss.

She told jurors that she and Bankman-Fried secretly dated on and off for two years, causing stress in and outside work.

“I think when Sam and I are sleeping together, or are in ‘flirty mode,’ I feel better about work and life, and don’t have the same negative spirals,” she wrote in a 2020 digital file included by her lawyers in a sentencing submission. “A lot of what stresses me out about work is specifically failing Sam, or Sam’s disapproval or something.” Kaplan, the judge, said at Ellison’s sentencing that she was a very strong person, but Bankman-Fried was her “kryptonite.” In addition to helping Bankman-Fried use FTX customer funds for risky investments, Ellison testified that she misled lenders about the firm’s precarious finances, knowing one day the lies would catch up with her.

FTX imploded in early November 2022 after a news report on a leaked Alameda balance sheet sparked a run on customer funds. Days later, FTX filed for bankruptcy protection.

“I was terrified,” Ellison told jurors, calling it the worst week of her life. “This is what I had been worried about the past several months, and it was finally happening.” A request for leniency Prosecutors and lawyers for Ellison had urged Kaplan to be far more lenient, citing her remorse and extensive co-operation with the criminal investigation. Her lawyers had asked the judge not to sentence her to prison.

Not only was Ellison’s co-operation “exemplary,” prosecutors said, but she endured harassment and public scrutiny to help the government.

Before the trial, Bankman-Fried leaked her private writings, and her therapist disclosed confidential information about her treatment that was subsequently published in a best-selling book. During the proceedings, she required protection by federal agents because of mobs of photographers and reporters, and her ex-boyfriend laughed and scoffed while she testified in court.

“The Government cannot think of another co-operating witness in recent history who has received a greater level of attention and harassment,” prosecutors wrote to the judge.