Why did Caroline Ellison get such a light sentence?

Prosecutors and the defense argued that Caroline Ellison should be sentenced to prison; without Ellison, the extent of Sam Bankman-Fried’s crimes would never have been revealed.

Caroline Ellison was a key member of Sam Bankman-Fried’s inner circle and became a key witness against him in a high-stakes case last year.

Ellison was the former CEO of Alameda Research, FTX’s sister trading firm, which collapsed in 2022 after a multibillion-dollar black hole emerged in the exchange’s financial structure.

A subsequent, extensive investigation revealed that FTX customer funds were used to make risky bets without the customers’ knowledge, and Alameda was provided with a secret “back door” that allowed the hedge fund to withdraw seemingly infinite amounts of money.

He could have faced up to 110 years in prison, but an early guilty plea would have made it unlikely he would spend the rest of his life in prison. In a rare case, both the prosecution and the defense have requested an extension to his time in prison.

In a Manhattan courtroom on Tuesday, Ellison apologized to anyone who lost money on FTX. “Not a day goes by,” he said, without thinking about the harm done to so many innocent victims.

“The human brain is really bad at understanding big numbers. I was involved in a criminal conspiracy that stole billions of dollars from people who entrusted us with their money.”
Ellison

Prosecutors wrote a sympathetic note to Judge Lewis Kaplan, praising his “extraordinary cooperation with the government” and saying that should be reflected in his sentence. The note concluded:

“The government cannot think of another cooperating witness in recent history who has received more attention and harassment. The professional consequences that come with this level of notoriety are clear and unlikely to be short-lived. But Ellison remained honest and committed to telling the truth throughout his testimony, and certainly during it — even when it was often embarrassing for him — and helped bring the most guilty party to justice.

At the hearing, the judge stated that Ellison had been consistently “very self-incriminating” in his testimony and that a 110-year sentence would be “absurd.”

However, the judge concluded that the defendant was “not innocent in any way” and sentenced him to two years in prison.

Why did prosecutors praise Ellison?

In the face of Bankman-Fried’s “systematic destruction of evidence,” prosecutors argued that she provided “credible and detailed information” about Ellison’s significant role in the crimes, which created a clearer picture of his wrongdoings.

Ellison also reportedly warned SBF about Alameda’s aggressive borrowing behavior, predicting that the company would eventually have to use FTX funds if the market changed direction.

“As FTX crashed, Bankman-Fried persisted in publicly denying knowledge and wrongdoing. Ellison, on the other hand, expressed relief that the fraud had been exposed and that he had taken responsibility for his wrongdoing,” prosecutors wrote in their sentencing statement. While the judge agreed that she had cooperated fully, Bankman-Fried “was quite the opposite.”

After being subjected to a heavy paparazzi swarming during the three days she testified, Ellison spoke out about her on-off relationship with SBF, directly accusing him of wrongdoing and claiming that his unkempt appearance was a deliberate attempt to boost FTX’s image.

Her testimony played a key role in Bankman-Fried being convicted of defrauding customers and investors and subsequently sentenced to 25 years in prison. He is currently appealing his sentence.

Prosecutors said many of the allegations would have been difficult to prove without his assistance, adding: “Ellison’s timely cooperation contributed to the speed with which the government was able to charge Bankman-Fried, preventing him from fleeing the Bahamas or further obstructing the government’s investigation.”

While some argued that Ellison’s sentence was too lenient, prosecutors stressed that he would face consequences for years to come.

They said Bankman-Fried leaked private writings to The New York Times in an attempt to undermine her testimony, and that sensitive details she shared with a therapist were included in Michael Lewis’s book Going Infinite. Prosecutors wrote last week:

His physical appearance has been scrutinized and criticized, and he’s been mocked in memes and other content on social media. Numerous movies and TV shows are in production about the FTX collapse, adding to the public scrutiny Ellison has already faced. The professional ramifications of this level of fame are obvious.

Ellison’s lawyer added that their client “will carry shame and regret to the grave” and that Bankman-Fried had a direct role in distorting his moral compass.

Anjan Sahni said he was also affected by FTX’s sudden withdrawal halt and bankruptcy, as the platform had “the vast majority of his savings.”

“He will never profit from his role in this crime,” Sahni added.

Ellison, who turns 30 in November, has been portrayed as focused on rebuilding his life by doing volunteer work and writing a math textbook. He is unlikely to keep any of the earnings he made at Alameda Research. His legal team wrote:

Caroline’s participation in the criminal conspiracies at Alameda Research is a dramatic departure from her otherwise law-abiding nature. She poses no risk of reoffending. Sending Caroline to prison is completely unnecessary as a deterrent or to protect the public. Caroline is unlikely to reoffend because she did not commit these crimes out of greed.

There’s no point in minimizing the seriousness of Ellison’s crimes or his role in undermining the financial health of countless FTX customers, but in the eyes of both the prosecution and the defense, he also played a key role in unraveling the mess that ensued.

Nearly two years have passed and 98% of those who owed money to this failed exchange are getting their full initial investment, plus an additional 18% in compensation.

If Ellison had not cooperated so closely, the outcome could have been very different, and that was reflected in his sentence.