By Luc Cohen
NEW YORK (Reuters) – Former cryptocurrency chief executive Caroline Ellison was sentenced to two years in prison on Tuesday for her role in stealing $8 billion in customer funds from the bankrupt cryptocurrency exchange she founded, FTX, founded by her ex-boyfriend Sam Bankman-Fried, but the judge credited her for her extensive cooperation with prosecutors.
U.S. District Judge Lewis Kaplan told a hearing in Manhattan federal court that he was uncomfortable with the idea that remorse and cooperation were “get out of jail free” cards in such a grave case. Prosecutors called Bankman-Fried’s actions one of the largest financial frauds in U.S. history.
Ellison, 29, pleaded guilty to seven counts of fraud and conspiracy and testified as a prosecution witness in the trial of Bankman-Fried, who was convicted of fraud and other charges last year and is serving a 25-year prison sentence in connection with the 2022 FTX collapse.
The crimes she pleaded guilty to carried a maximum sentence of 110 years in prison. Her lawyers argued there would be no prison time because of her cooperation. Prosecutors also sought a lighter sentence.
Kaplan told Ellison that she bore “serious culpability for this fraud,” though he added that her “extraordinary cooperation” was a “fundamental difference” between her and Bankman-Fried.
“There is no way you would ever do anything like that again, I am convinced,” the judge told Ellison. “But the thing is, this was, if not the biggest financial fraud ever committed in this country or anywhere else, close to it.”
Ellison folded her hands in her lap and looked at the defense table after the verdict was read. Earlier, she had addressed Kaplan, speaking quickly and reading from a prepared statement.
“Not a day goes by that I don’t think about all the people I’ve hurt,” said Ellison, a Stanford graduate whose parents and two sisters were in court. “My brain can’t fully comprehend the amount of harm I’ve done. That doesn’t mean I don’t try.”
Ellison headed Alameda Research, a cryptocurrency-focused hedge fund founded by Bankman-Fried, from 2021 to 2022. Ellison said she thought about leaving Alameda many times.
“Every time I thought about it, I heard Sam’s voice in my head,” Ellison told the judge.
“Ignoring that voice in my head and speaking up would have been brave,” Ellison said, beginning to choke and sob. “I’m sorry I wasn’t brave.”
The U.S. attorney’s office in Manhattan, which brought the charges, did not recommend a specific sentence but urged Kaplan to be tolerant on Ellison.
“I cannot overstate the importance of Ms. Ellison’s testimony in convicting Sam Bankman-Fried,” prosecutor Danielle Sassoon said at the hearing.
Prosecutors said Ellison met with them about 20 times to support them piece together the factual story of FTX and build their case against Bankman-Fried.
“Unlike Bankman-Fried, she is not cunning. There is no evidence that she was driven by greed, or that an appetite for risk or power was part of her nature,” Sassoon said.
“A POWERFUL MESSAGE”
Anjan Sahni, Ellison’s lawyer, told the judge that sparing Ellison from prison “will send a strong signal about the value of timely, honest and full cooperation with the government in financial crimes cases.”
“She didn’t shy away from the details, no matter how embarrassing they were,” Sahni said, adding that Ellison’s “honesty and openness” proved crucial to the prosecution’s case.
Kaplan said he would recommend that Ellison be placed in a minimum-security prison and begin serving her sentence in November. Ellison could be eligible for release in a few months brief of two years if she has good behavior in prison.
The verdicts for Nishad Singh and Gary Wang, two other former FTX executives who cooperated with prosecutors, are scheduled for Oct. 30 and Nov. 20, respectively.
Bankman-Fried, 32, has benefited from the boom in cryptocurrency prices during the COVID pandemic, reaching a net worth of $26 billion by October 2021, according to Forbes. He has gained notoriety as a generous donor to philanthropic causes and Democratic politicians.
His fortune evaporated when FTX collapsed in November 2022 amid a wave of customer withdrawals. Bankman-Fried was charged a month later with stealing FTX customer funds to cover losses in Alameda. Ellison pleaded guilty in December 2022.
Ellison testified for three days at Bankman-Fried’s trial, saying he ordered her and others to take money from FTX customers without their knowledge. Bankman-Fried is appealing the conviction and sentence.
