Who Is Caroline Ellison In The FTX Scandal?
In late December 2022, another individual close to the collapse of the FTX cryptocurrency exchange pleaded guilty to all seven charges against her in a New York federal court, as reported by The Wall Street Journal. That person was Caroline Ellison, former CEO of Alameda Research, a firm linked with FTX. She also admitted that she agreed to illegally divert billions in funds from FTX consumers toward Alameda Research despite "[knowing] it was wrong," according to her court statement.
During her court appearance, Ellison further revealed that she took part in covering up close ties between her company, a cryptocurrency trading firm, and FTX, the now-bankrupt crypto exchange and hedge fund. Both were founded or co-founded by the crypto mogul Sam Bankman-Fried. At the time of this writing, Bankman-Fried had yet to enter his plea for the charges against him (via Reuters). So, just who is Ellison and how did she get wrapped up in the FTX scandal?
From college student to CEO
The child of leading Massachusetts Institute of Technology (MIT) economists, much of the information about Caroline Ellison's personal life comes from her alleged Tumblr blog (via Business Insider). As Futurism detailed, Ellison's connection to the now-deleted Tumblr blog "worldoptimization" can't be confirmed, though the Tumblr did link to Ellison's official Twitter feed at one point. In the posts, Ellison reportedly wrote on polyamory, her views on gender and race relations, and world affairs.
Per CoinDesk, Ellison, a math prodigy, graduated with a bachelor's degree from Stanford University. Post-graduation, Ellison met Bankman-Fried as an intern at Jane Street, a Wall Street hedge fund. From there, Ellison transitioned to her executive position at Alameda. According to Ellison, her role as CEO was "broad." In 2022, Ellison and her colleague at Alameda, Sam Trabucco, were listed by Forbes as part of its "30 Under 30," a prestigious round-up of young business leaders. Following the FTX disaster, Ellison's alleged Tumblr feed disappeared, along with her presence on sites like LinkedIn.
FTX's complex web of relationships
According to CoinDesk's sources, a variety of the Bahamas-based higher-ups in fallen FTX founder Sam Bankman-Fried's various crypto enterprises dated one another. Aside from the financial entanglement between FTX and Alameda, Caroline Ellison and Bankman-Fried (SBF) were romantically involved at one time (via The Wall Street Journal). Per Forbes, Ellison and SBF also shared an interest in effective altruism. This philosophical movement posits that the best way to amend issues in society is through evidence-based, empirical data analysis of how time and resources devoted to such causes might best be used (via Centre for Effective Altruism).
In her sundry online posts through Tumblr and Twitter, among other sites, Ellison reportedly described her lifestyle with FTX colleagues in the Bahamas with SBF like a strictly hierarchical "imperial Chinese harem" in which everyone knew their place (via Business Insider). Speaking to The New York Times, a psychiatrist who worked at FTX has since cast doubt on rumors of polyamorous activity at the company. Ellison expressed her thoughts on the value of so-called "trad" — or traditional, gender-conforming lifestyles and relationships — while she also noted her increasing disillusionment with society and culture overall. She also frequently took amphetamines.
Alameda received special access to FTX accounts under Ellison
As The Stanford Daily wrote, in her federal court appearance Caroline Ellison admitted she received access to FTX accounts in 2019, which amounted to "an unlimited line of credit" for Alameda free of the typical oversight and without notifying FTX customers. Alameda used those FTX consumer funds to make ill-advised venture capital investments and also to provide loans to Sam Bankman-Fried and other FTX executives. Ellison also claimed that she put the money towards paying off debt taken out by Alameda to finance its high-risk decisions.
Per The New York Times, political donations to both the Republican and Democratic Parties may have come from FTX funds. Ellison and Bankman-Fried also fabricated "quarterly balance sheets" to hide the extent of the FTX executives' financial transgressions, according to Ellison's court statement. At her hearing, Ellison said, "I also understood that many FTX customers invested in crypto derivatives and that most FTX customers did not expect that FTX would lend out their digital asset holdings and fiat currency deposits to Alameda in this fashion" (via The Stanford Daily).
Ellison knowingly overvalued the FTX token, FTT
According to the Securities and Exchange Commission, Ellison also played a part in purchasing large amounts of FTT, the FTX proprietary crypto token, on the open market. By doing so, Ellison and others involved in the case artificially drove up the FTT price, which helped conceal the full extent of Alameda's debt from investors and the misappropriation of consumer funds, based on reporting by Business Insider. Referring to the loans held by Alameda, Ellison reportedly said in her court hearing, "I agreed with others to borrow several billion dollars from FTX to repay those loans" (via The New York Times). In her statement, she also expressed regret.
According to the New York Post, both Ellison and FTX co-founder Gary Wang have committed to "[cooperating] fully" with the authorities, possibly in pursuit of reduced sentencing. On that note, former Brooklyn federal prosecutor Moira Penza told the Post, "Ms. Ellison was in the door as early as she could be and didn't even need to be indicted. She is signaling at every opportunity that she is taking responsibility and is truly remorseful."
Ellison could face a 110-year prison sentence
As of this report, Ellison had yet to be sentenced, but in accordance with her guilty plea on all seven charges against her, she could receive up to 110 years in prison, as New York Post explained. Following her court appearance, Ellison was released on $250,000 bail, notably less than SBF's $250 million bail bond. At the time of Ellison's court appearance, SBF lived with his parents in Palo Alto, California under house arrest.
Because of her cooperation, Ellison may only receive probation, former Brooklyn federal prosecutor Penza said to the Post. "It is not unheard of for testifying cooperators, even ones facing as long a sentence as Ms. Ellison, to receive probation rather than any prison term." If Ellison testifies at the trials of SBF or others related to the case, it "would make her cooperation even more significant and be a further argument for reducing her sentence," Penza added. As the Post noted, Ellison could still be responsible for "financial damages." She has also been named in a related lawsuit from the federal government.