Key Insights:

• U.S. prosecutors praise Ellison’s testimony, calling her cooperation critical in convicting Sam Bankman-Fried.
• Ellison’s lawyers request time served, citing her key role in exposing FTX’s fraudulent schemes.
• Ellison, among other FTX executives, faces sentencing as cooperation plays a key role in outcomes.

Caroline Ellison, former CEO of Alameda Research, is set to be sentenced on September 24, 2024. U.S. prosecutors have acknowledged her significant cooperation in the case against former FTX CEO Sam Bankman-Fried, which may result in a more lenient sentence. 

In a filing submitted to the U.S. District Court for the Southern District of New York on September 17, 2024, prosecutors referred to Ellison’s contributions as “extraordinary,” emphasizing her critical role in providing testimony that helped convict Bankman-Fried.

Ellison’s Involvement in FTX and Alameda Research

Ellison’s involvement in the activities at Alameda Research played a crucial role in FTX’s downfall. Prosecutors acknowledged that while she participated in the mismanagement that led to the collapse, Sam Bankman-Fried was the primary mastermind behind the fraudulent schemes. The government’s filing emphasized that Ellison “never worked at FTX” and was not involved in developing the systems that allowed Alameda to withdraw funds from FTX, which were later misused.

The filing noted that while Ellison followed Bankman-Fried’s orders, she borrowed billions of dollars from FTX customers to cover Alameda’s debts. Despite this, prosecutors placed most of the blame on Bankman-Fried, stating that he was “involved in all aspects” of the fraudulent activities, whereas Ellison’s role was limited to managing Alameda.

Ellison’s cooperation, described as “forthcoming,” included admitting to her role in the fraudulent activities and assisting authorities in understanding how the illegal activities at FTX and Alameda were conducted. Her testimony was pivotal in helping prosecutors build a strong case against Bankman-Fried, resulting in his conviction on all seven felony counts.

Cooperation with Authorities

Ellison began cooperating with U.S. authorities shortly after FTX’s collapse in November 2022. By December 8, 2022, she had pled guilty to multiple charges, including wire fraud, securities fraud, commodities fraud, and money laundering. Her testimony during Bankman-Fried’s trial in October 2023 played a significant role in unraveling how Alameda Research hid the borrowing of $10 billion from FTX customer accounts.

Although she did not manage investor relations at FTX, Ellison admitted to helping conceal Alameda’s financial situation from FTX’s auditors. Prosecutors said that her testimony helped clarify the scope of the fraud and confirmed Bankman-Fried’s leadership in the schemes, leading to his conviction. Bankman-Fried was sentenced to 25 years in prison in March 2024, and his legal team has since appealed the decision.

In addition to her cooperation in the criminal case, Ellison assisted in civil lawsuits brought by the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). Her assistance in these cases has also been noted by prosecutors, who praised her for providing essential information.

Leniency Request for Sentencing

Ahead of her sentencing, Ellison’s lawyers have requested leniency, citing her cooperation with prosecutors. They have proposed “time served” and three years of supervised release, noting her assistance in exposing the fraudulent activities within Alameda and FTX. U.S. prosecutors appear to back this request, recognizing her testimony as critical in securing Bankman-Fried’s conviction and providing insights into the complex fraudulent schemes.

Prosecutors also pointed out the personal toll Ellison has faced due to her involvement in the case, noting that she has been subjected to considerable public attention and harassment, including personal attacks from Bankman-Fried himself. In their filing, they stated, 

“The Government cannot think of another cooperating witness in recent history who has received a greater level of attention and harassment.”

The government has argued that Ellison’s cooperation, combined with the professional and personal consequences she has already endured, could justify a reduced sentence. However, the final decision will rest with Judge Lewis Kaplan, who will determine whether Ellison will serve prison time or receive the leniency her attorneys have requested.

Other Sentencing Cases

Ellison is one of several key figures from FTX facing sentencing. Ryan Salame, former co-CEO of FTX Digital Markets, was sentenced to 90 months in prison after pleading guilty to similar charges. Like Ellison, Salame also cooperated with authorities but is still expected to report to prison in October 2024.

Other FTX executives, including former FTX engineering director Nishad Singh and co-founder Gary Wang, have pleaded guilty to criminal charges and are awaiting sentencing. Singh is set to be sentenced on October 30, 2024, while Wang’s sentencing is scheduled for November 20, 2024. Both individuals, like Ellison, played a part in the FTX scandal and have cooperated with prosecutors.