Caroline Ellison receives 2 years in prison for FTX fraud

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Caroline Ellison, the former head of the trading firm through which FTX gambled away billions of dollars in customer funds, was sentenced to two years in prison despite assisting prosecutors in the criminal case against Sam Bankman-Fried, the founder of the collapsed cryptocurrency exchange.

Judge Lewis Kaplan handed down the sentence Tuesday during a hearing in New York federal court. “To all the victims and everyone I have harmed … I am so sorry,” a tearful Ellison said in court before Kaplan’s decision. “I am deeply ashamed.”

The sentence for Ellison, who ran FTX-affiliated trading fund Alameda Research, stands in stark contrast to the 25-year prison term imposed on Bankman-Fried in March, one of the longest sentences ever imposed in the U.S. for a white-collar criminal. Another former FTX executive, Ryan Salame, was sentenced to 90 months in prison in May.

FTX was one of the world’s largest crypto exchanges when it collapsed in November 2022 after it was revealed that Alameda had secretly siphoned billions of dollars in customer deposits.

Ellison, who pleaded guilty to fraud and money laundering shortly after FTX’s collapse, testified for several days at Bankman-Fried’s trial, where she was the key witness.

She led the jury through spreadsheets, internal documents and private Signal chats that painted a picture of a years-long criminal conspiracy by the former crypto billionaire.

During her hearing, Ellison revealed that the FTX founder had instructed her and her former colleagues to steal around $10 billion worth of customer deposits from the exchange to fund risky investments and repay loans.

She said Bankman-Fried instructed her to create seven “alternative” financial statements for Alameda, some of which concealed billions of dollars in bribes to FTX executives, and she was told to cover up how the trading group “borrowed $10 billion from FTX customers.”

A version of Alameda’s accounts that made the “assets appear larger” was passed on to crypto lenders, including Genesis, which called in loans amid a sharp downturn in the industry, Ellison testified. Genesis’ lending division later went bankrupt.

Prosecutors had asked for leniency toward 29-year-old Ellison. In a letter to Kaplan before the hearing, they stressed that Ellison had been “instrumental in the successful prosecution of Samuel Bankman-Fried for one of the largest financial frauds in history” and had provided “significant assistance in the investigation.”

They added that Ellison, who previously had an on-off relationship with Bankman-Fried, was humiliated in the press as a result of her testimony and that her private conversations with a therapist were revealed in Michael Lewis’ book about the FTX collapse.

“The government cannot think of any other cooperating witness in recent history who has received this level of attention and harassment,” they wrote.

Ellison, a Stanford University graduate, met Bankman-Fried at the high-speed trading firm Jane Street before leaving to join him in Alameda. She was responsible for running the trading firm and had described feeling trapped and drawn into Bankman-Fried’s warped moral worldview.

While awaiting sentencing, Ellison wrote a novella “set in Edwardian England and loosely based on the imaginary love adventures of her sister Kate,” the former executive’s mother revealed in a letter to the court.

Two other former FTX executives, Nishad Singh and Gary Wang, who also pleaded guilty, are scheduled to be sentenced later this year.