Caroline Ellison, former CEO of Alameda Research LLC, appears in court in New York, U.S., Tuesday, Oct. 10, 2023.
Yuki Iwamura | Bloomberg | Getty Images
Caroline Ellison was the star player in the criminal case against disgraced FTX founder Sam Bankman-Fried. She will face her own sentence on Tuesday.
Ellison’s role in the collapse of the crypto empire run by her former boss and ex-boyfriend Sam Bankman-Fried was to lie to investors, help steal billions of dollars from FTX clients, and then repurpose those funds into bets and debt built up at Alameda Research, the digital hedge fund he ran as CEO.
Bankman-Fried and Ellison are both, in the eyes of the US justice system, guilty of the same crimes.
Two counts of wire fraud, two counts of conspiracy to commit wire fraud, one count of conspiracy to commit securities fraud, one count of conspiracy to commit commodities fraud and one count of conspiracy to commit money laundering. Those charges carry a statutory maximum prison sentence of about 110 years, but there is a sliding scale that takes into account the scope of the crimes and the defendant’s criminal history.
CNBC spoke with former federal prosecutors, attorneys and legal experts to get their take on what Ellison might have in store at Tuesday’s hearing. They agree that Ellison is likely to get away with no jail time at all.
After a twelve-person panel unanimously found Bankman-Fried guilty of all seven criminal charges against him in November, he was sentenced in March to 25 years in prison for his crypto fraud and ordered to pay $11 billion in forfeiture.
Unlike Bankman-Fried, Ellison agreed to a plea deal in December 2022. She pleaded guilty on all charges against her and spent two years cooperating with the government, regulators and FTX’s bankruptcy estate.
Meanwhile, Bankman-Fried continues to deny virtually any criminal wrongdoing and is seeking a retrial.
Attorneys for Ellison and Bankman-Fried did not immediately respond to requests for comment.
Government exhibit in case against former FTX CEO Sam Bankman-Fried.
Source: SDNY
No time behind bars
Cooperating with the prosecution on white collar crimes, even classified “one of the biggest financial frauds in American history,” is a long shot.
Ellison was the most important of the many secret agents who testified for the government, said former Assistant U.S. Attorney Kevin J. O’Brien, who specializes in white-collar criminal defense in New York.
“Because of her close relationship with Sam, she was able to provide a personal portrait of Bankman-Fried, an elusive character to be sure, that was rather unique in the government case,” O’Brien said.
The Federal Probation Department has recommended “three years of supervised release” in credit for Ellison’s “excellent cooperation with the government” and “her otherwise unblemished record.”
While District Judge Lewis Kaplan is under no obligation to accept the Probation Department’s recommendation, O’Brien said that, along with some sort of fine, that would be “a fair sentence” because it reflects the “tremendous value” of Ellison’s cooperation .
The U.S. legal system tends to favor reduced sentences for those who help bring down higher targets, said Braden Perry, a former senior trial attorney for the Commodity Futures Trading Commission.
At most, Perry estimates that Ellison, who is the third executive connected to Bankman-Fried’s business to be convicted, faces 18 months in prison and three years of supervised release.
Although Ellison was deeply involved in the fraudulent activities, she “did not have the same control or managerial authority as SBF, which will likely influence the judge’s decision to impose a light sentence,” Perry said.
Encourage cooperation
Ellison’s conviction will likely entail several years of supervised release and community service with a number of attached activity restrictions, such as a ban on trading in crypto and non-crypto markets or travel abroad, said Yesha Yadav, a law professor and Associate Dean at Vanderbilt University .
Unlike Bankman-Fried who faced a public admonishment and was portrayed by the government as a repeat offender, Ellison has been repeatedly praised by prosecutors and by new FTX CEO and bankruptcy trustee John Ray III.
“On the stand, he came across as someone who felt guilt and pain for what he had done,” Yadav said.
The SBF defense team asked no more than 6.5 years prison term, but Kaplan said Ellison’s testimony ultimately proved decisive in his decision to sentence Bankman-Fried to nearly four times as much.
Kaplan also sided with federal prosecutors when he revoked Bankman-Fried’s bail and sent him back to prison for witness tampering after he leaked private diary entries written by Ellison. Kaplan described the leak from Bankman-Fried as one designed to “hurt” and “claim” Ellison.
Ellison “suffered a lot of public humiliation over the past two years, often with sexist undertones,” Yadav said.
Most judges don’t like to send people to prison who pose no threat to harm others in the future, said former federal prosecutor Paul Tushman.
“The likelihood that Ellison will ever harm anyone through criminal conduct in the future is very low,” Tahman said.
If Kaplan ends up sentencing Ellison to prison, that could bode well for former FTX chief engineering officer Nishad Singh and FTX co-founder and chief technology officer Gary Wang. Singh and Wang will be sentenced on October 30 and November 20, respectively.
“I think if he wants to, Judge Kaplan can ‘afford’ not to give all these people jail time,” Tuchman said, adding that “most judges want to encourage people like them to cooperate and serve a sentence of one year. and probation is the best way to do that.”
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