No ‘Get Out of Jail Free Card’ for Caroline Ellison

On Tuesday afternoon, Judge Lewis Kaplan sentenced Caroline Ellison to two years in prison and three years of supervised release, announcing his decision came in the same courtroom where, hardly six months earlier, he sent Sam Bankman-Fried to prison for a quarter-century. Ellison had been the star witness against the crypto mastermind — flawed, but extremely clear and devastating — who had helped the government convince 12 jurors to render SBF guilty in a highly complex case.

That’s why Ellison’s sentence was a surprise. In 2022, shortly after FTX collapsed, Ellison pleaded guilty to seven counts of fraud and conspiracy, but her assistance to the government, both on the stand and behind closed doors, was substantial — “extraordinary,” in the government’s words. Most legal observers believed she would get no prison time. And in the courtroom on Tuesday, it seemed that Kaplan was ready to allow her to get off with time served.

“I’ve seen a lot of cooperators here over the years. I’ve never seen one quite like Ms. Ellison,” Kaplan said to her, during the packed afternoon hearing. Kaplan spoke at length to praise her for telling federal prosecutors about an infamous spreadsheet of fraudulent balance sheets even before the government had found them in evidence. He also contrasted her character against SBF’s, who was notoriously difficult in court. “Your remorse is the real thing,” Kaplan told her. Then Kaplan’s mood turned darker. Cooperation, no matter how good, was not a “get out of of jail free card,” he said.

Ellison’s sentencing concludes a nearly two-year-old saga that seemed poised to end with her quasi-redemption.

For his part, Bankman-Fried’s defense never changed. From the moment his crypto exchange FTX collapsed, the shaggy-haired erstwhile billionaire made the case that he was just as baffled as anyone else by what happened. The reason FTX imploded, he argued, was because he had entrusted his $14 billion crypto empire to his feckless employees — to people like Ellison, the novice trader he chose to be CEO of his hedge fund and who also happened to be his on-and-off girlfriend.

For roughly a year, SBF sought to publicly define Ellison, then a relative unknown even in the hyper-niche world of crypto, as a bumbler and a bit of a joke. He leaked entries from her diary to the New York Times and gave embarrassing details to Michael Lewis for inclusion in Lewis’s book. In podcasts and in interviews, he suggested that Ellison was the one who was most at fault for his hedge fund stealing $9 billion in customer funds off his exchange. The picture — bolstered by old blog posts of hers about polyamory and Harry Potter — was of a woman in over her head in every way imaginable.

Given the chance to correct the record, Ellison chose silence. She pleaded guilty to seven charges of fraud and conspiracy days after FTX went into bankruptcy, then all but disappeared from public view. When she finally appeared on the witness stand last October, it had been about a year since she and SBF had seen each other. As the star witness for the prosecution, she became SBF’s nemesis — and his opposite. While SBF’s turn on the stand would show him to be vague, difficult, and so prone to lying that Judge Kaplan would later fault him for perjuring himself, Ellison proved precise in remembering details, calm under cross-examination, and, at a key moment, deeply and tearfully regretful.

In court filings, Ellison added new details to what we know about the chaos of the final days of FTX’s collapse and the immense pressure she was under. When FTX was rapidly losing money, Ellison — at Bankman-Fried’s direction — called Dustin Moskovitz, the Facebook co-founder, for a multibillion-dollar loan. But she also defied Bankman-Fried’s wishes when she “refused to lie” about the fraud that caused the hole to begin with. There is a reference to the final conversation that Ellison and SBF shared, when he asked her to “get assets to the Bahamas” in order to frustrate the U.S. bankruptcy proceedings. But she refused and, according to the filings, told him that she was “interested in cooperating with the U.S. government.”

In the government’s sentencing recommendation, prosecutors note her “extraordinary cooperation.” One of the key challenges in prosecuting SBF was making sense of his web of companies and holdings, which was generally as messy and disheveled as he was. John Ray III, the veteran restructuring executive who took control of FTX after it fell into bankruptcy, testified that the company was run on QuickBooks — accounting software more suitable for a local sandwich shop than a global crypto empire aiming to be worth trillions. Ellison ended up sitting with federal prosecutors during at least 20 sessions that were key in deciphering otherwise inscrutable documents from Alameda and FTX — including a notorious Excel spreadsheet with seven different versions of a balance sheet that was used to defraud investors. “Caroline thereby helped the government establish its central rebuttal to Mr. Bankman-Fried’s defense of ‘good faith’ mistake,” federal prosecutors said.

There is, of course, an argument to make that Ellison’s cooperation agreement is self-serving — both in potentially limiting the punishment she faces and as well-timed revenge against her former boyfriend. “Caroline’s more guilty than SBF,” wrote Ryan Salame, the former CEO of FTX, who is set to serve seven and a half years in prison for his role in the exchange’s collapse and who has repeatedly accused her of unspecified lying. But part of what made Ellison’s testimony so powerful was not necessarily what it revealed, but what it reinforced. Ellison was the third ex-employee of SBF’s to testify at last fall’s criminal trial, after co-founder Gary Wang and ex-engineering head Nishad Singh. And surely, SBF didn’t do himself any favors by failing to make a coherent argument for his own innocence. Ellison’s attorneys have argued that her cooperation is coming out of her own regret and noted that she has even assisted in other cases that would have not been subject to her agreement with federal prosecutors — including the New York attorney general’s office and in a complex civil case in Florida that has revealed damning details about Deltec Bank, one of the key institutions for the stablecoin tether.

Ellison has made it clear so far that she is looking to lead her life, at least for the short term, out of the public eye. She has asked the court to redact some personal information about where she lives and her current romantic partner, citing the oppressive media scrutiny of her life so far. According to court filings, the post-collapse story of Ellison is of a woman who has seen the errors of her ways. “Caroline blames no one but herself for what she did. She regrets her role deeply and will carry shame and remorse to her grave,” according to her sentencing submission, which asks for no additional prison time. The MIT graduate is essentially unemployable and has spent her time volunteering with different charitable organizations, giving out food at soup kitchens and meal-delivery services, teaching adult literacy classes, fostering rescue dogs, and preparing taxes for the poor. In her free time, she has supposedly written a novel that is unrelated to the facts of the FTX case.

After Judge Kaplan read out her sentence, Ellison’s sisters and parents, sitting in the front row, started to quietly cry. The mood had turned quiet in the court. Her attorney leaned over and said something to Ellison. She turned to him and nodded her head. “I’m okay,” she mouthed.