A US federal judge in the Southern District of New York has sentenced Caroline Ellison, a member of the ring of executives who presided over the fraud that led to the collapse of crypto exchange FTX, to two years in prison. In addition, she has been ordered to forfeit $11 billion.
In December 2022, Ellison pleaded guilty to seven counts of fraud and conspiracy in connection with the fall of FTX. Last March, FTX founder Sam Bankman-Fried—with whom Ellison shared a tumultuous romantic relationship—was sentenced to 25 years in prison after being convicted of similar crimes at trial.
The exchange filed for bankruptcy in November 2022 after running dry of funds to process customer withdrawals. The money was missing, a jury found, because FTX insiders had conducted an elaborate fraud whereby billions of dollars in customer funds were swept into a sibling company, Alameda Research, headed by Ellison. Those funds were then used to bankroll high-risk trading, venture bets, debt repayments, personal loans, political donations and a lavish life in the Bahamas.
Although a rise in the price of cryptocurrencies means FTX customers are expected to be paid back in full—if only based on the dollar-value of the assets in their FTX accounts at the time of the collapse—the funds remain locked up in the bankruptcy proceeding.
Ellison faced a theoretical maximum sentence of 110 years in prison. Before receiving her sentence, Ellison told the court of her regret for having become embroiled in the FTX fraud and the damage she had caused to customers.
In a court filing in early September, Ellison’s legal counsel had petitioned the judge to refrain from sending her to prison, pointing to the extent of her cooperation with the investigation into FTX, the responsibility she had taken for her wrongdoing, and her obvious contrition.
The US Department of Justice later filed a letter in support. The DOJ stopped short of asking the judge to hand down a specific sentence—such is the convention in the Southern District of New York, former prosecutors say—but noted Ellison’s “extraordinary cooperation.”
“There is no formula, but (judges) often say they are trying to consider the person as a whole,” says Joshua Naftalis, a former US prosecutor and partner at law firm Pallas Partners. The presentence filing sought, therefore, to place Ellison’s actions in the context of her complicated relationship with Bankman-Fried and make play of any potentially mitigating elements of her character and background. “What you are trying to impress upon the judge is that the person being sentenced is more than the crime they committed,” says Naftalis.
The potency of Ellison’s testimony against Bankman-Fried will also have gone a long way to convincing the judge to show leniency, says Paul Tuchmann, a former US prosecutor and partner at law firm Wiggin and Dana.
Testifying at Bankman-Fried’s criminal trial in October 2023, Ellison depicted her former paramour as the driving force behind the FTX fraud. On the stand, she painted Bankman-Fried as forceful and calculating and described for the jury his various deceptions, the careful curation of his public image, and his warped relationship with risk. “(Bankman-Fried) was totally comfortable with taking a risk, as long as he thought it was a positive expected value,” said Ellison, under examination by the prosecution. “He talked about being willing to take large coin flips, like a coin flip where if it comes up tails, you might lose $10 million, but if it comes up heads, you make slightly more than $10 million.”
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