Caroline Ellison joined Alameda as a trader in 2018 and became its co-CEO in 2021. She now faces seven counts related to fraud and money laundering.
FTX and Alameda Research were founded by Sam Bankman-Fried, a child prodigy turned alleged fraudster, who was arrested in the Bahamas in mid-December and extradited to the United States. He now faces charges from entities such as the U.S. Securities and Exchange Commission and the Southern District of New York, and faces up to 115 years in prison.
Now, Caroline Ellison herself is facing charges: She pleaded guilty to seven counts, including wire fraud charges, announced U.S. Attorney Damian Williams of the SDNY via a video tweeted Wednesday night.
Statement of U.S. Attorney Damian Williams on U.S. v. Samuel Bankman-Fried, Caroline Ellison, and Gary Wang pic.twitter.com/u1y4cs3Koz
– US Attorney SDNY (@SDNYnews) December 22, 2022
Gary Wong, a co-founder of FTX, also pleaded guilty to four counts, Damian Williams said.
“Both Ms. Ellison and Mr. Wong have pleaded guilty to these charges, and both are cooperating with the Southern District of New York“he added.
He reiterated his call for anyone involved in the alleged misconduct to come forward.
“It’s time to take the lead“, he added.
In the fall of 2021, when bitcoin was trading at $57,000, Ellison, who had joined the team in 2018 as a trader, became its co-CEO (along with Sam Trabucco, who later left the company in August 2022), according to Bloomberg.
Caroline Ellison was not a publicity demon like Bankman-Fried – who testified in Congress on crypto regulation and positioned herself as a crypto elder statesman – but Ellison’s SEC complaint made it clear that she was involved in moving FTX customer deposits to cover up Alameda’s financial problems. Prior to the charges, New York Magazine called Caroline Ellison “possible accomplice in what may be the largest financial fraud in history“
Who is Caroline Ellison?
Caroline Ellison chatted with fellow FTX employee Tristan Yver for an internal company PR podcast episode in July 2020 and talked about her background and education.
She said she mostly grew up in Newton, just outside of Boston. Her parents are economics professors Glenn Ellison, an economics professor at the Massachusetts Institute of Technology (MIT), and Sara Fischer Ellison, also a lecturer at the prestigious university, according to CoinDesk.
Caroline Ellison said in the episode that she inherited a natural aptitude for mathematics and competed in math competitions at a young age. She went on to major in mathematics at Stanford. After applying for trading internships on a whim – a notoriously competitive process – she landed one at Jane Street Capital, a high-profile Wall Street firm, and then worked there full-time for a year and a half.
What is Alameda Research?
Sam Bankman-Fried founded what became his portfolio of crypto-currency companies in 2017, starting with Alameda.
Sam Bankman-Fried had started Alameda Research as a sort of high-risk, high-reward crypto trading company, using tactics like arbitrage – he even said he called it “research“to give it a better vibe – in 2017, taking advantage of the crypto environment relatively”wild“, according to NPR.
Sam Bankman-Fried expanded into more complex crypto trading accessible to a wider audience with the founding of FTX, a crypto exchange, in 2019, leveraging his image as a highly experienced crypto person, raising money from high-profile people like BlackRock, according to NPR.
How did Caroline Ellison meet Sam Bankman-Fried?
According to some reports, Caroline Ellison met Sam Bankman-Fried at Jane Street. He worked there from June 2014 to September 2017, according to his LinkedIn, which (at press time) is still online.
Caroline Ellison said she learned about Alameda while having coffee with then-CEO Sam Bankman-Fried during a visit to the Bay Area and decided that “it seemed like an opportunity too cool to pass up.“Caroline Ellison joined the company in 2018.
Eventually, Bankman-Fried resigned as CEO of Alameda, but remained CEO of FTX. In October 2021, Ellison became co-CEO with Sam Trabucco, a former trader at Susquehanna International Group. It is not yet clear whether he will accept a deal as Ellison did.
Sam Trabucco resigned in August 2022 for ” spend a lot of time traveling “, he wrote on Twitterwhile noting that he has ” bought a boat “.
What happened to FTX and Alameda?
But it turns out that things were pretty chaotic behind the scenes. FTX positioned itself as a white knight, buying competitor Voyager Digital, as the crypto world was suffering from rising interest rates and the subsequent tech stock rout.
Then CoinDesk reported that Alameda was heavily reliant on FTX-issued assets (which essentially lacked independent value), which caused customers to panic – and the whole house of cards collapsed.
It turned out that FTX had loaned out Alameda users’ deposits to cover its risky crypto transactions. This would be like Venmo lending its customers’ money to a hedge fund it is linked to in order to hedge stock market bets. It’s highly inappropriate, to say the least.
Regarding corporate financial processes in general, current FTX CEO John Ray III, who is guiding the company through the bankruptcy process, said, “Never in my career have I seen such a complete failure of corporate controls. “
What was Caroline Ellison’s relationship with Sam Bankman-Fried?
There have been rumors of polyamory, a style of relationship that involves ties to more than one person, in the Bahamas among FTX executives, where the company is based and where Bankman-Fried and Ellison have lived, according to CoinDesk.
“The 10 are, or were, paired in romantic relationships with each other“, writes the media.
As Insider noted, in Tumblr blogs linked to Ellison, one user posted about group relationship styles (as well as takes on disliking social justice culture and thinking women are bad at math). It was also suggested that FTX and Bankman-Fried employees were spending lavishly on the island, from yachts to thousands of dollars a day on catering.
Is Caroline Ellison being charged? Where is she now?
Caroline Ellison pleaded guilty to seven counts, including conspiracy to commit wire fraud, and faces a maximum sentence of 110 years, according to the agreement. She will also have to pay restitution to the court, to be determined later.
She will also have to forfeit any property obtained in connection with the crimes – and will cooperate with the investigation.
The SEC’s complaint provides further details about Ellison’s role in the scheme.
According to the Wall Street Journal, the SEC claimed the right to regulate FTT by classifying it as a security (the SEC has stated that most crypto assets are securities). As such, it highlighted various problems perpetrated by Caroline Ellison.
According to the WSJ, Ellison manipulated the price of a token owned by FTX so that Alameda could use it as collateral for loans she took out from FTX customers.
The agency also stated that Ellison knew how and actively participated in using FTX customer funds to cover Alameda’s deficits.
Previously, it was briefly mentioned in SEC documents related to Bankman-Fried’s arrest.”During a meeting with Alameda employees on or about November 9, 2022, Ellison admitted that she, Bankman-Fried, Wang, and Singh knew that FTX customer funds had been used by Alameda“, the complaint states.
Bloomberg also previously reported that Ellison had taken legal representation – Stephanie Avakian, a former SEC official specializing in crypto-currencies at the firm WilmerHale, citing people familiar with the case. The firm did indeed represent her in her plea agreement.