Caroline Ellison gets 2 years for covering up Sam Bankman-Fried’s FTX fraud

Caroline Ellison "deeply regrets" FTX lies, must now forfeit $11 billion.

Caroline Ellison was sentenced Tuesday to 24 months for her role in covering up Sam Bankman-Fried's rampant fraud at FTX—which caused billions in customer losses.

Addressing the judge at sentencing, Ellison started out by explaining "how sorry I am" for concealing FTX's lies, Bloomberg reported live from the hearing.

"I participated in a criminal conspiracy that ultimately stole billions of dollars from people who entrusted their money with us," Ellison reportedly said while sniffling. "The human brain is truly bad at understanding big numbers," she added, and "not a day goes by" that she doesn't "think about all of the people I hurt.”

Assistant US Attorney Danielle Sassoon followed Ellison, remarking that the government recommended a lighter sentence because it was important for the court to "distinguish between the mastermind and the willing accomplice." (Bankman-Fried got 25 years.)

US District Judge Lewis Kaplan noted that he is allowed to show Ellison leniency for providing “substantial assistance to the government.” He then confirmed that he always considered the maximum sentence she faced of 110 years to be "absurd," considering that Ellison had no inconsistencies in her testimony and fully cooperated with the government throughout their FTX probe.

“I’ve seen a lot of cooperators in 30 years," Kaplan said. "I’ve never seen one quite like Ms. Ellison."

However, although Ellison was brave to tell the truth about her crimes, Ellison is “by no means free of culpability," Kaplan said. He called Bankman-Fried her "Kryptonite" because the FTX co-founder so easily exploited such a "very strong person." Noting that nobody gets a "get out of jail free card," he sentenced Ellison to two years and required her to forfeit about $11 billion, Bloomberg reported.

The judge said that Ellison “can serve the sentence at a minimum-security facility,” Bloomberg reported.

Ellison was key to SBF’s quick conviction

Ellison could have faced a maximum sentence of 110 years, for misleading customers and investors as the former CEO of the cryptocurrency trading firm linked to the FTX exchange, Alameda Research. But after delivering devastatingly detailed testimony key to exposing Bankman-Fried's many lies, the probation office had recommended a sentence of time served with three years of supervised release.

Kaplan's sentence went further, making it likely that other co-conspirators who cooperated with the government probe will also face jail time.

Both Ellison and the US government had requested substantial leniency due to her "critical" cooperation that allowed the US to convict Bankman-Fried in record time for such a complex criminal case.

Partly because Ellison was romantically involved with Bankman-Fried and partly because she "drafted some of the most incriminating documents in the case," US attorney Damian Williams wrote in a letter to Kaplan, she was considered "crucial to the Government’s successful prosecution of Samuel Bankman-Fried for one of the largest financial frauds in history," Williams wrote.

Williams explained that Ellison went above and beyond to help the government probe Bankman-Fried's fraud. Starting about a month after FTX declared bankruptcy, Ellison began cooperating with the US government's investigation. She met about 20 times with prosecutors, digging through thousands of documents to identify and interpret key evidence that convicted her former boss and boyfriend.

"Parsing Alameda Research’s poor internal records was complicated by vague titles and unlabeled calculations on any documents reflecting misuse of customer funds," Ellison's sentencing memo said. Without her three-day testimony at trial, the jury would likely not have understood "Alameda’s intentionally cryptic records," Williams wrote. Additionally, because Bankman-Fried systematically destroyed evidence, she was one of the few witnesses able to contradict Bankman-Fried's lies by providing a timeline for how Bankman-Fried's scheme unfolded—and she was willing to find the receipts to back it all up.

"As Alameda’s nominal CEO and Bankman-Fried’s former girlfriend, Ellison was uniquely positioned to explain not only the what and how of Bankman-Fried’s crimes, but also the why," Williams wrote. "Ellison’s testimony was critical to indict and convict Bankman-Fried, and to understanding both the timeline of the fraud schemes, and the various layers of wrongdoing."

Further, where Bankman-Fried tried to claim that he was "well-meaning but hapless" in causing FTX's collapse, Ellison admitted her guilt before law enforcement ever got involved, then continually "expressed genuine shame and remorse" for the harms she caused, Williams wrote.

A lighter sentence, Ellison's sentencing memo suggested, "would incentivize people involved in a fraud to do what Caroline did: publicly disclose a fraud, immediately accept responsibility, and cooperate immediately with civil and criminal authorities."

Williams praised Ellison as exceptionally forthcoming, even alerting the government to criminal activity that they didn't even know about yet. He also credited her for persevering as a truth-teller "despite harsh media and public scrutiny and Bankman-Fried’s efforts to publicly weaponize her personal writings to discredit and intimidate her."

"The Government cannot think of another cooperating witness in recent history who has received a greater level of attention and harassment," Williams wrote.

In her sentencing memo, Ellison's lawyers asked for no prison time, insisting that Ellison had been punished enough. Not only will she recover "nothing" from the FTX bankruptcy proceedings that she's helping to settle, but she also is banned from working in the only industries she's ever worked in, unlikely to ever repeat her crimes in finance and cryptocurrency sectors. She also is banned from running any public company and "has been rendered effectively unemployable in the near term by the notoriety arising from this case."

"The reputational harm is not likely to abate any time soon," Ellison's sentencing memo said. "These personal, financial, and career consequences constitute substantial forms of punishment that reduce the need for the Court to order her incarceration."

Kaplan clearly disagreed, ordering her to serve 24 months and forfeit $11 billion.

Ellison’s moral compass warped by FTX

In December 2022, Ellison pleaded guilty to seven felony counts, including wire fraud, as well as conspiracy to commit wire fraud, commodities fraud, securities fraud, and money laundering.

Since then, Ellison has suffered greatly, her sentencing memo said, noting that she now must "effectively" live "in hiding." Because Internet trolls have sought to dox her, and her family has been barraged with "online harassment and threats, Ellison "is wary of going out in public." She expects this harassment is unlikely to ever end, and her "repeated efforts to find a paying job have been unsuccessful."

But Ellison does not pity herself for being in this position, Williams wrote. While it's common for guilty parties to make "disingenuous" appeals "to the Court’s mercy" to obtain lower sentences by making "self-serving" remarks expressing phony remorse, Williams told Kaplan that Ellison is a rare exception. She has "acknowledged her wrongdoing not out of self-interest, but because she understood that she had wronged her employees, FTX customers, Alameda’s lenders, and others affected by FTX’s collapse."

Unlike Bankman-Fried's other co-conspirators in the FTX scheme, Ellison did not live a lavish life despite becoming wealthy while helming Alameda Research as its nominal CEO. Her mother explained in her sentencing memo that Ellison "finds it wasteful to spend money on luxuries when there are people in the world who do not have enough to eat." Where Bankman-Fried stole customer funds to enrich himself, the only "significant purchase" Ellison made was $10 million in shares in the AI company Anthropic, her sentencing memo noted. And the profits from that purchase will now be used to settle with FTX debtors and the US government.

During the trial, Ellison explained how her moral compass was warped by her desire for Bankman-Fried's approval. She knew that she could have chosen not to follow his directions to misuse customer funds, her sentencing memo said, and she fully admitted that "she took actions that she knew to be wrong, helping him steal billions."

Now, she's committed to helping anyone impacted by FTX's collapse to reclaim their losses, recently confirming that she had finalized a settlement agreement with FTX debtors that "she expects will leave her without anything she earned while employed at Alameda." Current FTX CEO John Ray attributed the protection of "hundreds of millions of dollars in Debtor assets" to Ellison quickly and diligently helping advisers understand FTX's systems, her sentencing memo said. For two years, she has aided in the recovery of lost funds "however she can," her lawyers noted.

"She regrets her role deeply and will carry shame and remorse to her grave," Ellison's sentencing memo said.

Other FTX conspirators to be sentenced soon

FTX's former engineering head, Nishad Singh, is scheduled to be sentenced on October 30, and FTX co-founder Gary Wang will be next, on November 20. Both cooperated with the government's investigation as Ellison did, and both had similarly pled guilty to charges. Now it appears likely that both will also serve time for their crimes.

Bankman-Fried is currently appealing his conviction, claiming that the court never weighed evidence that he "thought FTX had enough funds to cover customer withdrawals," Reuters reported.

But he may struggle to prove that, as Ellison's testimony repeatedly made clear that she advised against using customer funds for loans, because lenders could ask to be repaid at any time, and they did not have the assets to cover repayments. At Bankman-Fried's direction, evidence showed she also manipulated balance sheets to make Alameda's assets appear larger and ensure that investors did not detect that Alameda "had been borrowing increasing money from FTX customers."

As Ellison now faces a sentence of two years for her crimes, the support she has received from family and friends has been the only thing making her notoriety endurable, her sentencing memo said. She also has a new boyfriend who friends say is "a vast improvement over" Bankman-Fried, valuing honesty to the point where "he finds even the small white lies of corporate politics distasteful."

This indeed stands in stark contrast to Ellison's characterization of Bankman-Fried, which Williams said helped the government understand his motive for executing his fraudulent scheme.

At trial, Ellison explained "Bankman-Fried’s outsize appetite for risk, his desire for power and influence, and his cavalier attitude about honesty, in a compelling and credible manner," Williams said. And she never once claimed that Bankman-Fried's power over her should excuse her crimes, Williams noted, instead taking accountability for enabling the fraud that cost victims an estimated $12.7 billion.

During the trial, Ellison repeatedly explained that the day that FTX collapsed, one of her most pronounced feelings was a tremendous relief that she no longer had to hide all of Bankman-Fried's lies.

"I felt a sense of relief that I didn’t have to lie anymore, that I could start taking responsibility and being honest about what I had done, even though I obviously felt indescribably bad about all of the people that were harmed and the people that lost their money, the employees that lost their jobs, people that trusted us that we had betrayed," Ellison testified.