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Caroline Ellison Sentencing: When Will the ex-Alameda Chief, SBF’s Inner Circle Learn Their Fate?

Last Updated March 28, 2024 3:11 PM
Teuta Franjkovic
Last Updated March 28, 2024 3:11 PM
By Teuta Franjkovic
Verified by Peter Henn

Key Takeaways

  • Caroline Ellison entered guilty pleas to cooperate with authorities.
  • Disgraced FTX founder faces up to 50 years in prison at sentencing.
  • Sam Bankman-Fried was found guilty, with his ex-girlfriend testifying against him.
  • Ellison is likely to receive minimal or no prison time for her testimony.

FTX founder Sam Bankman-Fried has been sentenced to 25 years in an American prison for defrauding customers and investors in the FTX crypto exchange.

By assisting in the transfer of billions of dollars in FTX customer funds to Alameda Research, an allied hedge fund controlled by Bankman-Fried, former Alameda CEO Caroline Ellison claimed the disgraced former billionaire authorized her to commit fraud.

Disgraced FTX Founder Faces Up to 50 Years in Prison at Sentencing

Sam Bankman-Fried, the embattled former cryptocurrency magnate, will spend the next 25 year in prison.

During the month-long trial of Sam Bankman-Fried in October, the prosecution presented testimony from over a dozen witnesses, in stark contrast to the defense’s three. Among the most compelling evidence was testimony from several FTX executives, notably including Caroline Ellison, Bankman-Fried’s former romantic partner.

The prosecution argued that FTX customer funds, amounting to billions, were illicitly redirected to Alameda Research, Bankman-Fried’s trading firm, to settle substantial loans acquired from cryptocurrency lenders.

As the CEO of Alameda Research, Caroline Ellison’s testimony was particularly damning. She admitted that Alameda had indiscriminately used FTX’s deposits for various needs under Bankman-Fried’s instructions, which included committing financial misdeeds.

One specific instance Ellison highlighted was Bankman-Fried’s directive to prepare seven different balance sheets to deceive Genesis, a primary lender to Alameda, when it demanded repayment of a $500 million loan. The duo decided on a fabricated balance sheet that significantly downplayed Alameda’s debts. It also omitted any reference to borrowing from FTX customer funds, according to Ellison’s testimony.

Ellison revealed that, throughout its operation, Alameda misappropriated approximately $14 billion from FTX customers, underscoring the magnitude of the alleged financial misconduct.

It is still unclear when Ellison’s sentence will be known.

Deltec Bank Accused of Facilitating Misuse of FTX Deposits

Deltec Bank and Trust, a Bahamian bank serving the cryptocurrency industry, faces allegations of assisting in the misallocation of FTX customer deposits to Alameda Research. A lawsuit  also claims it provided billions in credit to support the issuance of the stablecoin Tether.

The lawsuit is underpinned by messages and testimonies from Caroline Ellison, the former CEO of Alameda Research. She has agreed to disclose this information as part of her settlement. Deltec, which has long been a banking partner for Tether and has vouched for the stablecoin’s reserve value, now finds itself at the center of serious allegations.

Lawsuit Accuses Alameda Research of Misusing FTX Funds with Deltec Bank’s Alleged Complicity

Alameda Research is accused of diverting billions in customer assets from FTX.

A lawsuit  claims that Deltec Bank actively facilitated this by identifying FTX customer deposits and manually transferring them to Alameda’s account, even after becoming aware of Alameda’s financial troubles and FTX’s impending failure. Additionally, Deltec is alleged  to have violated know-your-customer (KYC) and anti-money laundering (AML) standards by sharing sensitive compliance information with FTX, effectively aiding in regulatory evasion, and disregarding mandatory KYC and AML checks for FTX and Alameda.

The lawsuit alleges that Deltec Bank continued questionable practices even after recognizing the financial instability of Alameda Research and the impending downfall of FTX. It says Deltec neglected its duty to enforce know-your-customer (KYC) and anti-money laundering (AML) protocols. It, reportedly, shared sensitive compliance details and customer data with FTX, effectively helping them dodge regulatory oversight.

The bank is also charged with exempting FTX and Alameda from obligatory KYC and AML checks. It also, allegedly, falsified documents to further circumvent these regulations.

Lawsuit Alleges Moonstone Bank’s Federal Reserve Membership Obtained Through Deceit for FTX Benefit

The lawsuit further alleges Moonstone Bank’s admission into the Federal Reserve system came about via deceptive means. In turn, these will have heped FTX. Owned by Deltec’s chairman, Jean Chalopin, with Alameda Research as its principal investor, Moonstone Bank’s acquisition is claimed to have have been part of a plan to help FTX’s entry into the US banking sector. The legal action contends FTX aimed to establish a bank under its control. The lawsuit implicates both entities in a scheme to extend FTX’s banking capabilities through manipulation.

Deltec’s Deputy CEO Allegedly Facilitated FTX and Alameda Financial Transfers with Informal Practices

Deltec Bank’s deputy CEO, Gregory Pepin, reportedly  played a crucial role in managing the financial transactions between FTX and Alameda Research, often employing unconventional methods to expedite services. Pepin is accused of going “outside the guideline” to accelerate processes for FTX and Alameda, including preparing invoices for customer wire transfers.

He notably signaled the receipt of FTX customer funds to Alameda Research with the phrase “MOOONNNEEEYYY TTTIIIIMMMMEEEE” in their Telegram chat, showcasing a level of direct involvement and service that set Deltec apart from competitors like Silvergate, even humorously noting their ability to outperform under challenging conditions.

Leniency Expected For Key Witnesses

As part of agreements to cooperate with authorities, ex-Alameda Research CEO and SBF’s ex-girlfriend Ellison had already entered a guilty plea, which supported her evidence.

Cooperative witnesses frequently receive leniency, particularly if they assist the government in catching larger fish. And that indeed corresponds with the conviction of Bankman-Fried, one of the most well-known figures in the cryptocurrency space.

Several criminal defense attorneys closely following the case have predicted  Ellison is unlikely to receive a significant prison sentence. It is always possible she will not get one at all, considering her testimony. This stands in stark contrast to the potential decades-long prison term Bankman-Fried could face when sentenced in March.

Ellison’s sentencing will probably follow Bankman-Fried’s. The prosecution will probably write to the judge, explaining the importance of her assistance. Although judges do not have to follow such letters, they often do. This is, at least in part, to promote the testimony of other witnesses.

If convicted, she might later end up in the same prison as fellow white-collar offender Martha Stewart . Ellison could also stay in the women-only FPC Alderson, also known as “Camp Cupcake.” The only other stand-alone federal prison camp for women in the U.S. is FPC Bryan.

Potential Consequences For Ellison After SBF Case

Justin Paperny , a former UBS Group AG broker who served an 18-month sentence for fraud, believes that if Ellison jailed, it is likely to be a short sentence. She may go to a minimum-security facility for non-violent offenders.

However, even if she avoids jail time, Ellison may still face other forms of punishment. She may have to reimburse the victims for their losses and return funds obtained through deception. Given the government’s claim of FTX clients losing billions, this could impose a substantial financial burden.

Paperny, now a consultant for white-collar offenders dealing with incarceration, shared that he once worked at a minimum wage job answering phones to fulfill a $535,000 restitution judgment after his release. It’s worth noting that, following sentencing, the Justice Department can seek payment for up to 20 years.

Tim Howard, a former federal prosecutor in Manhattan, stated : “If you are joining Team USA, you are required to make financial remuneration consistent with the facts. On that, you don’t get off easy.”

“Very Aggressive In Collecting”

Paperny remarked : “They’re very aggressive in collecting. The money from the sale or refinance of your home goes to the government, so you are unable to do either.”

Ellis may have a degree from Stanford, but she’ll probably won’t get another job in banking or cryptocurrency. Indeed, it is unlikely she’ll find work in any industry where she might handle other people’s money.

Chris Rice , a partner at the tech executive recruitment agency Riviera Partners said the risk was “too high”. He added: “I don’t think they’ll be able to function within an organization at the same level as they did in the past.”

SBF Could End Up In Medium-Security Prison

Facing a potential 110-year prison sentence, SBF’s likely destination could be a medium-security correctional facility. This would resemble Otisville Prison in New York, where Bernie Madoff, the Ponzi scheme fraudster, served his 150-year sentence.

Bankman-Fried’s address after prison will probably be his parents’ residence in Palo Alto, California. As a result, this suggests a probable placement in an institution on the West Coast. Prominent contenders for his new home following sentencing include California’s FCI Herlong, USP Lompoc, and FCI Mendota.

Ellison served as a unique witness with a personal and professional relationship with Bankman-Fried. Her role appeared crucial to one of the defense’s main arguments presented in the opening statements. Fundamentally, they said,  he had entrusted her to lead Alameda Research.

Many believe her failure to implement protective measures before market downturns worsened the company’s financial issues. Under the circumstances, prospective employers might not want to offer her a second opportunity.

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