Caroline Ellison, the ex-executive who pleaded guilty to conspiring with disgraced crypto mogul Sam Bankman-Fried, has been sentenced to two years in prison for her role in an $11 billion fraud scheme.
US District Judge Lewis Kaplan handed down the sentence in a Manhattan federal courtroom shortly after Ellison delivered a wrenching apology, holding back tears as she expressed regret for participating in the fraud and told of the relief she felt when it all came crashing down and she could come clean with how she helped siphon money from FTX customers.
The sentence — which also includes three years of supervised release after the two years in prison and the forfeiture of her gains from her time at Alameda Research — came as something of a surprise twist at the end of the hourlong sentencing hearing Tuesday afternoon.
Ellison was the star witness in last year’s criminal trial against Bankman-Fried. Along with three other executives, they pleaded guilty to charges related to a plot where they siphoned money from customers of the FTX cryptocurrency exchange to Alameda Research — both companies that Bankman-Fried controlled.
Kaplan lingered on Ellison’s “very, very substantial cooperation” with prosecutors and bankruptcy lawyers and praised her for “genuine remorse.” Her legal team smiled as the judge spent several minutes favorably contrasting Ellison’s conduct with Bankman-Fried, who he previously sentenced to 25 years in prison.
But close to the end of the hearing, Kaplan’s tone shifted. He declined to give her a sentence of zero time behind bars — which she and prosecutors asked for — citing the sheer scale of the fraud.
“For it to be a case this serious, to be a literal get-out-of-jail-free card — I cannot see a way to it,” Kaplan said.
Ellison appeared stunned, her face pale as Kaplan gave the sentence. Her mother, sitting in the courtroom audience behind her, sat tight-lipped. One of Ellison’s two younger sisters wept openly. Her father’s face fell in despair.
In her remarks to the court before the sentence, Ellison acknowledged her involvement in the sophisticated criminal scheme. She said that while she routinely dealt with huge numbers at Alameda Research, she still found it hard to fathom the scale of people whose money was taken in the FTX fraud.
“On some level, my brain doesn’t even comprehend all the people I harmed,” she said, her voice cracked but steady. “That doesn’t mean I don’t try.”
When FTX collapsed in November 2022 — and Ellison admitted to her Alameda Research employees that they had taken money from the exchange’s customers — above all she felt relief, she said.
“I found it meaningful to tell the truth of everything that happened,” she said. “Lying doesn’t come naturally to me.”
Kaplan praised Ellison for her forthrightness and noted that she appeared sincerely driven by an Effective Altruism philosophy rather than greed. And he credited her claim that her on-and-off romantic entanglement with Bankman-Fried made her vulnerable.
“You’re a very strong person in some ways. But you’re not inviolable. Somehow, for some reason — it’s hard for me to understand — Mr. Bankman-Fried had your kryptonite,” Kaplan said. “You were vulnerable and you were exploited.”
In the end, $11 billion was just too much for a slap on the wrist.
Cooperators normally get no prison time
Both prosecutors and Ellison’s lawyers had asked for her to spend zero time behind bars, putting the judge in a potentially vexing position.
As the star witness in Bankman-Fried’s criminal trial. She testified over three days last October in a downtown Manhattan courtroom about how she and Bankman-Fried used Alameda Research, his hedge fund, to invest billions of dollars worth of assets secretly siphoned from customers of FTX, the cryptocurrency exchange he controlled.
Judges often describe criminal sentencing as the most challenging part of their jobs. They must decide whether to take away a person’s freedom, and how much of it. Ellison’s sentencing set up a high-stakes balancing test.
On one hand, as the CEO of Alameda Research, Ellison was a participant in one of the biggest fraud schemes in history. But Kaplan weighed detailed filings from prosecutors and her lawyers, which each make the case for no prison time. They said Ellison was under Bankman-Fried’s sway amid their on-and-off romantic relationship, that there is virtually no risk of recidivism, and that she has already been punished through excruciating public scrutiny.
“Numerous films and TV shows are in production about the downfall of FTX, which will only perpetuate the public scrutiny Ellison has faced to date,” prosecutors wrote in a filing ahead of the sentencing hearing. “The Government cannot think of another cooperating witness in recent history who has received a greater level of attention and harassment.”
In Tuesday’s hearing, Ellison’s lawyer Anjan Sahni noted that she offered to give her life story rights to the government so that she would not profit from media projects, and said she “essentially has been forced to live in hiding.” Kaplan noted her cooperation came “at a serious price emotionally and personally.”
“Every part of your life has turned inside out and public to an unusual degree,” he said. “And now that’s probably, hopefully going to relax.”
At the same time, Kaplan considered Ellison’s actual conduct. She still participated in a massive fraud scheme, after all. He was also required to consider general deterrence and public confidence in the judicial system. What kind of message does it send if you can get no time in prison for participating in a massive fraud scheme by deciding to cooperate once things go south?
Also on the scale was the needs of prosecutors, who want to woo cooperators in other cases by dangling the possibility of lower sentences. If cooperators get big sentences, then they have less incentive to cooperate.
“I am not able to overstate the importance of Ms. Ellison’s testimony in convicting Bankman-Fried,” prosecutor Danielle Sassoon told Kaplan during the hearing.
Sarah Krissoff, a former Manhattan federal prosecutor who oversaw financial fraud cases, said Kaplan was “uber-informed” after presiding over criminal cases related to the FTX saga for nearly two years now and watching Ellison’s testimony on the stand.
It’s different than a case where everyone pleads guilty and the judge has a smaller court to use in their sentence, Krissoff observed.
“After presiding over this case for years, Judge Kaplan clearly has strong views on the conduct and — in his view — the need for significant sentences,” Krissoff, now a defense attorney at Cozen O’Connor, told BI. “Particularly given the undisputed success of her cooperation, it is a significant hit for Ellison, who was surely hoping for a non-custodial sentence.”
Ellison was a sterling example of a cooperator, and judges — especially in New York, where there are many white-collar cases — typically give that a lot of weight, Krissoff said.
“She was essential to them. They needed her,” Krissoff, now a defense attorney at Cozen O’Connor, told BI. “And she came through, and she withstood her three days of testimony, and she was clearly credible.”
Kaplan drove the point in his sentencing hearing, noting that federal sentencing guidelines would theoretically treat Ellison and Bankman-Fried the same.
“The guideline range computed for Mr. Bankman-Fried and Ms. Ellison was the same: 110 years in prison,” he said.
Kaplan said he gave Bankman-Fried a lower sentence because “this is the real world” and the recommended sentence of 104 years was “absurd.” But even then, there was a key difference between him and Ellison.
“Ms. Ellison, while you were gravely culpable in that fraud — and there’s no doubt about it — that remarkable cooperation is the fundamental difference between you and Sam Bankman-Fried,” he said.
“You are genuinely remorseful,” Kaplan added later. “I think Mr. Bankman-Fried is sorry too — he’s sorry his gamble didn’t work out and he’s sorry he got caught.”
Kaplan said he would recommend the Bureau of Prisons place Ellison in a minimum-security prison near her parents’ home in Boston, and that her sentence would begin in early November.
Joshua Naftalis, a former Manhattan federal prosecutor who oversaw securities fraud and cryptocurrency-related investigations, told BI in an interview before the sentencing hearing that it’s “typical though not guaranteed” for people in Ellison’s situation to get no jail time. She “fully cooperated” and got “a glowing letter” from prosecutors, he noted.
“That’s basically the business transaction of a cooperating witness with the government,” Naftalis, now a defense lawyer at Pallas LLP, told BI. “Which is: you faced a potential large jail time for an enormous fraud, and if you cooperate and do a great job, there is a really good chance that you don’t go to jail.”
“That’s basically the deal,” he added.
The big difference in Ellison’s case is the sheer size of the fraud, which has few precedents in the annals of white-collar crime.
“Here’s the thing: This was — if not the greatest financial fraud perpetrated in this country or anywhere else — close to it,” Kaplan said.
Ellison was the SBF trial’s star witness
Ellison pleaded guilty to fraud and money laundering for her role in the FTX scandal. As the CEO of Alameda Research, she used the funds stolen from FTX customers to make risky investments and cryptocurrency bets, and worked with Bankman-Fried to deceive Alameda’s lenders and investors.
At the trial, she testified about some of the ways she and Bankman-Fried kept the lid on how they took billions of dollars from FTX customers. Prosecutors spent a lot of time on a seven-tab spreadsheet she prepared, presenting different versions of an Alameda Research balance sheet that would best deceive investors and lenders about where their money came from.
As FTX collapsed in November 2022, Ellison was quick to come clean with employees at Alameda Research, telling them at an all-hands meeting that the crypto firm took customer money.
Prosecutors, in their sentencing letter, praised Ellison for helping them identify the key documents that would help their case against Bankman-Fried, and for cooperating with civil investigations from the Securities Exchange Commission and the Commodity Futures Trading Commission. John J. Ray III, who took over FTX as CEO in order to sort through its smoldering ruins during the bankruptcy process, also wrote a letter to court praising her cooperation. And on Monday night, Ellison’s lawyers wrote a letter to court saying she struck a deal with FTX debtors to ensure her cooperation even after the sentencing hearing.
“Ellison stood out not only for the speed of her cooperation, but for her consistent candor beginning in her very first meeting with the Government,” prosecutors wrote in a filing. “She accepted full responsibility from her very first proffer and did not minimize or shift blame.”
In her sentencing submission, Ellison’s lawyers wrote that she had been living a quiet life since the trial, working on a novel and helping her parents (both economists affiliated with MIT) with a math textbook. In emotional letters, her parents and friends recounted a moment when she comforted a close friend whose father had killed himself.
Ellison’s lawyers pointed out that Kaplan praised Ellison’s testimony during Bankman-Fried’s sentencing hearing, finding it helpful for understanding his motivations. (Bankman-Fried is appealing his conviction and sentence.)
Kaplan previously gave a 7½-year sentence to Ryan Salame, an FTX executive who pleaded guilty to charges against him but who was not a cooperating witness in Bankman-Fried’s trial. The sentence was longer than what prosecutors recommended, and Kaplan is now considering whether to revoke Salame’s guilty plea, accusing him of lying under oath in an earlier court proceeding.
Ellison’s sentence gives a preview of the sentences for Gary Wang and Nishad Singh, two former FTX executives who also pleaded guilty to charges against them and testified against Bankman-Fried at trial. Their respective sentencing hearings are scheduled for later in the fall.
“This sentence will set the market,” Naftalis told BI before the hearing.
This story was updated.
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