Carolyn Allison (center), former CEO of Alameda Research LLC, arrives in court in New York, U.S., Tuesday, Oct. 10, 2023.
Yuki Iwamura | Bloomberg | Getty Images
In sentencing FTX founder Sam Bankman-Fried to 25 years in prison on Thursday, Judge Lewis Kaplan cited testimony from the defendant’s ex-girlfriend, Caroline Ellison. Leeson was an early recruiter for his cryptocurrency venture.
“I keep reviewing Ms. Allison’s testimony, and he knew it was wrong,” Kaplan said during the sentencing hearing in downtown Manhattan. “He knew it was a crime.”
Ellison was the star witness in the Justice Department’s prosecution of Bankman-Fried. She agreed to a plea deal in December 2022, a month after FTX fell into bankruptcy.
As part of his testimony in the criminal trial late last year, Allison provided briefs, documents and secret recordings to the government and jury that ultimately helped convict Bankman-Fried on all seven charges against him.
Manhattan U.S. Attorney Damian Williams said in a statement after Thursday’s sentencing that Bankmanfried’s “deliberate and persistent lies demonstrated a blatant disregard for his clients’ expectations and a lack of respect for the rule of law. All this so that he could secretly exploit his clients.” money to expand their power and influence. “
Ellison, who managed FTX’s sister hedge fund Alameda Research, pleaded guilty to two counts of wire fraud, two counts of conspiracy to commit wire fraud, conspiracy to commit commodities fraud, conspiracy to commit securities fraud and conspiracy to commit money laundering.
Although Allison faces similar sentencing guidelines as Bankman-Fried, she is expected to receive a lighter sentence due to her role as a cooperating witness.
On October 11, 2023, in federal court in New York City, Caroline Ellison (Caroline Ellison) before U.S. District Judge Lewis Kaplan conducted a fraud trial in the collapse of bankrupt cryptocurrency exchange FTX ) was questioned under the watchful eye of Sam Bankman-Fried.
Jane Rosenberg | Reuters
Ellison’s complicated relationship with SBF
Ellison entered Bankman-Fried’s crypto space in 2017.
She had been working as a trader on Jane Street, where Bankman-Fried began his financial career. Bankman Fried reportedly persuaded the Stanford University graduate to give up his Wall Street job and join Alameda while the hedge fund was still based in its original Bay Area offices.
Allison had been Bankman-Fried’s on-again, off-again girlfriend and sometimes roommate over the years.She followed Bankman Fried from California to Hong Kong and eventually to In the Bahamas, Bankman Fried has moved the headquarters of his cryptocurrency company multiple times.
Michael Lewis wrote about Allison in his book “To Infinity,” which chronicles the rise and fall of Bankman Fried. In 2021, Ellison was promoted to CEO of Alameda, and according to Lewis’ reporting, both Ellison and Bankman-Fried believed she was not a good fit for the job.
“Caroline realized that although Sam promoted her to CEO of Alameda Research, he did not approve of her job performance, and she agreed with him,” Lewis wrote.
Lewis shared an excerpt from a memo Allison sent to Bankman-Fried. “It feels like I’m doing a much worse job running Alameda than you are working full time,” she wrote.
In April 2021, Allison tweeted About “Regular Use of Amphetamines” In one post, she also talked about the “huge” effort it took to get off the couch and go for a hike.
According to court documents, Ellison compensation It pales in comparison to other senior executives. Of the $3.2 billion paid to the exchange’s founders and other senior employees, FTX head of engineering Nishad Singh received $587 million, co-founder Gary Wang received $246 million, and Bankman-Fried received $2.2 billion. Ellison received $6 million.
Bankman Fried leaked some of Ellison’s private diaries to The New York Times, which published an article Report about them last July, months before the trial. The action ultimately landed Bankman-Fried back in jail after Kaplan revoked bail on suspicion of witness tampering.
In a Google document shared with The Times in February 2022, Allison wrote: “I’ve been feeling very unhappy and overwhelmed with my job… At the end of the day, I couldn’t wait to get back to Go home and turn off your phone and have a drink and get away from it all.”
She added, “It feels like there’s no real end in sight.”
“Trying to solve the problem”
But the first time jurors heard from Allison was in court.
U.S. Attorney Tarn Lane said during the trial that Bankman-Fried “used her as a cover” while “in reality, he was still calling the shots” in Alameda. During her days of testimony, Allison helped prosecutors build a narrative that she was acting on Bankman-Fried’s instructions to help him steal client funds from FTX and use it to help prop up Alameda , the company subsequently fell into crypto winter.
Allison said Bankman-Fried was still Alameda’s chief executive when the money flow began. She said she was under the impression these were FTX client funds because the amounts exceeded the exchange’s profits and the amount of funds raised.
In mid-2021, FTX bought back equity in the company from rival exchanges and early investors Allison testified that Binance and FTX used $1 billion in customer funds in this transaction.
Ellison said she considered resigning from Alameda multiple times from 2019 to November 2022.
Ellison has a section on one of her Google documents titled “Constraints to Expansion,” which she said refers to factors that are holding Alameda back. The first thing she listed was management, including comments about former co-chief executive Sam Trabucco.
“I feel like Trabucco and I have both done a good job of moving things forward,” she wrote. “We’re in a mode of maintaining the status quo and trying to fix the problem.”
Regarding the mixing of businesses between FTX and Alameda, Allison admitted on the witness stand that the two companies did not have a proper “Chinese wall” to separate their businesses.
During her testimony, Allison largely avoided eye contact with Bankman-Fried, staring down at her hands between questions and frequently flipping her hair over her left shoulder. Bankman-Fried also often looked away and clasped his hands.
Allison told the jury that her breakup with Bankman-Fried in the spring of 2022 affected communication between the two. Despite living in the same apartment, they mainly talk through Signal and generally avoid contact with each other outside of work.
Assistant U.S. Attorney Danielle Sassoon, representing the government, told Kaplan multiple times that “the defendant was laughing, visibly shaking his head, and scoffing,” which she said could have had an impact on Ellison, “given that The history of the relationship, previous relationships” attempts to intimidate her, the power dynamics, their romantic relationship. “
Caroline Ellison, former CEO of Alameda Research LLC, arrives in a U.S. courtroom in New York, Thursday, October 12, 2023.
Bloomberg | Bloomberg | Getty Images
Secret recordings and texts
Of the hundreds of items presented as evidence during the trial, a set of messages on the encrypted app Signal proved to be the most devastating for Bankman-Fried.
The government proposed a series of signal exchanges involving Bankman-Fried, Ellison, Wang and other executives. In one such exchange from November 8, 2022, Allison appealed to Bankman-Fried and other members of the Inner Circle for help with optics and public information.
In the Sam Bankman-Fried case, prosecutors relied heavily on text messages sent between senior executives at FTX and Alameda Research.
Source: SDNY
She wrote, “Many people have asked me internally whether they should continue to make statements like ‘Alameda is solvent’ to external parties. Should I advise them to delay? Just delay getting back to them? Or what?”
FTX suspended all customer withdrawals that day.
The next day, Allison turned to the group again for guidance on how to handle the problem. Alameda’s approximately 30 employees held an all-hands meeting.
Ellison’s offer was to tell them that “Alameda may be winding down” and that there was “no pressure” to stay, but that help “making sure our lenders get paid” would be “extremely appreciated.”
Bankman-Fried suggested she say something “that has some kind of future for people who are excited about it.”
In the Sam Bankman-Fried case, prosecutors relied heavily on text messages sent between senior executives at FTX and Alameda Research.
Source: SDNY
Ellison ended up revealing much more than he had in a staff meeting, and a secret recording was played to the jury.
“Alameda borrowed a lot of money” to make the investment, Ellison said at the meeting. But as cryptocurrency prices fell, “FTX users ran short of funds,” and then “users began withdrawing funds,” and they “realized they couldn’t continue.”
When a staff member asked her about her idea of using FTX customer money to cover Alameda’s loan losses, she said, “Well, Sam, I guess,” and chuckled.
“As far as I know, FTX has basically always allowed Alameda to borrow user funds,” Allison said.
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