Caroline Ellison, whose testimony contributed to the conviction of Sam Bankman-Fried, faces her own conviction
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A year ago, Caroline Ellison was preparing to testify against her former boss and ex-boyfriend in one of the biggest fraud trials in U.S. history. On Tuesday, she will find out whether her gamble – cooperating with prosecutors in the hope of avoiding prison – will pay off.
A short summary:
- FTX was a hot, celebrity-backed startup that allowed people to buy and sell digital assets.
- It collapsed in November 2022 when customers withdrew their funds en masse amid rumors about FTX’s unusually close ties to its founder’s crypto hedge fund, Alameda Research.
- Ellison, who ran Alameda, pleaded guilty to seven counts of fraud and conspiracy shortly after FTX’s collapse. She was one of several company insiders who turned on Sam Bankman-Fried, the founder of both companies, and identified him as the leader of a plan to defraud investors and steal $8 billion of FTX customer funds.
- Bankman-Fried, who pleaded not guilty, was found guilty and sentenced to 25 years in prison. He filed an appeal last week.
Ellison’s testimony at Bankman-Fried’s trial last fall was crucial.
In a memo to Judge Lewis Kaplan last week, prosecutors praised Ellison’s candor and her “substantial assistance” in the investigation – a fact that could help her avoid prison time even though she faces a similar list of charges as Bankman-Fried.
From the beginning, Ellison was the prosecution’s star witness – someone who worked hand-in-hand with Bankman-Fried and kept a diary documenting the ups and downs of their business and often difficult love affair. And in a trial that involved technical, complex issues like digital assets and decentralized finance, Ellison’s testimony offered an emotional and relatable narrative.
During her three days on the witness stand, Ellison, 29, repeatedly emphasized that during her years in Alameda, the responsibility lay with Bankman-Fried. When asked who had directed her to carry out various criminal or other acts, she frequently replied, “It was Sam.”
Of course, some critics, including Bankman-Fried’s defense attorneys, have noted that while Ellison may have been a compelling witness, she was not a whistleblower.
“There is no doubt that she deserves leniency,” wrote Dennis Kelleher, president of the nonprofit Better Markets. But at the same time, he said, “she could have single-handedly stopped this fraud at any time, long before billions of dollars were lost, hundreds of investors were defrauded, and tens of thousands of customers were ripped off.”
When FTX collapsed, customers were unable to use their trading accounts. But surprisingly, FTX’s bankruptcy trustees announced that they had recovered enough assets to repay most creditors in full and with interest, thanks to a rise in the value of cryptocurrency holdings.
While the sentence is entirely at Judge Kaplan’s discretion, legal experts say it is highly unlikely that Ellison will end up in prison.
In the Southern District of New York, where the case was heard, “the vast majority of white collar criminals do not receive prison time,” said Jordan Estes, a former federal prosecutor who is now a partner at Kramer Levin. And that is especially true if they have otherwise led law-abiding lives, she added.
Josh Naftalis, also a former federal prosecutor, noted that “a key aspect that Kaplan will consider in sentencing Ellison is whether the scale of the fraud – billions in losses – still requires a prison sentence.” Although Naftalis, now a white collar criminal defense attorney at the New York law firm Pallas, added that prosecutors’ description of her cooperation as “extraordinary” suggests that a prison sentence is unlikely.
The cases of other FTX executives are still pending.
Ryan Salame, a former FTX executive, was sentenced to more than seven years in prison after pleading guilty to violating campaign finance laws and operating an unlicensed money transmission business. Two other former executives, Nishad Singh and Gary Wang, who took a plea deal and testified against Bankman-Fried, are scheduled to be sentenced in the fall.
