Caroline Ellison May Not Face Jail for Role in FTX Collapse

Caroline Ellison was the star witness in the criminal case against disgraced FTX founder Sam Bankman-Fried and will face trial on Tuesday.

Ellison’s role in the implosion of the crypto empire run by her former boss and ex-boyfriend Sam Bankman-Fried was to lie to investors, help steal billions of dollars from FTX customers, and then funnel those funds into bets and debts accrued at Alameda Research, the digital asset hedge fund she ran as CEO.

Bankman-Fried and Ellison are both, in the eyes of the American justice system, guilty of the same crimes.

Two counts of wire fraud, two counts of conspiracy to commit wire fraud, one count of conspiracy to commit securities fraud, one count of conspiracy to commit commodities fraud and one count of conspiracy to commit money laundering. These charges carry a statutory maximum sentence of about 110 years, but there is a sliding scale that takes into account the scope of the crimes and the defendant’s criminal history.

CNBC spoke to former federal prosecutors, attorneys and legal experts for their take on what Ellison could face at Tuesday’s hearing. They agree that Ellison will likely walk away without any jail time.

After a 12-person jury unanimously found Bankman-Fried guilty of all seven counts against him in November, he was sentenced in March to 25 years in prison for his crypto fraud and ordered to pay $11 billion in forfeiture.

Unlike Bankman-Fried, Ellison accepted a plea deal in December 2022. She pleaded guilty to all charges against her and spent two years cooperating with the government, regulators and the FTX bankruptcy estate.

Meanwhile, Bankman-Fried continues to deny virtually all criminal wrongdoing and is trying to have his case retried.

Lawyers for Ellison and Bankman-Fried did not immediately respond to requests for comment.

Cooperation with the prosecution in white-collar crime cases, even in what has been billed as “one of the largest financial frauds in American history,” is very helpful.

Ellison was the most prominent of several insiders who testified for the government, said former Assistant U.S. Attorney Kevin J. O’Brien, who specializes in defending white-collar criminals in New York.

“Because of the closeness of her relationship with Sam, she was able to provide a personal portrait of Bankman-Fried, an elusive character, to be sure, but one who was probably unique in the government’s case,” O’Brien said.

The federal Probation Department recommended “a sentence of three years of supervised release” as a reward for Ellison’s “extraordinary cooperation with the government” and “his otherwise unblemished record.”

Although District Judge Lewis Kaplan is not obligated to accept the probation department’s recommendation, O’Brien said that with some sort of fine, it would be “a fair sentence” because it reflects the “tremendous value” of Ellison’s cooperation.

The U.S. legal system tends to favor reduced sentences for those who help bring down more dangerous targets, said Braden Perry, a former senior counsel for the Commodity Futures Trading Commission.

At most, Perry estimates Ellison, who is the third executive connected to Bankman-Fried’s company to be convicted, faces 18 months in prison and three years of supervised release.

Although Ellison was deeply involved in the fraudulent activities, “she did not have the same control or leadership authority as SBF, which will likely influence the judge’s decision to impose a light sentence,” Perry said.

Ellison’s conviction will likely result in several years of supervised release and community service with a series of activity restrictions, such as a ban on trading in crypto and non-crypto markets or traveling abroad, said Yesha Yadav, a law professor and associate dean at Vanderbilt University.

Unlike Bankman-Fried, who has been publicly warned and portrayed by the government as a repeat offender, Ellison has been repeatedly praised by prosecutors and by new FTX CEO and bankruptcy trustee John Ray III.

“On the stand, she came across as someone who felt guilt and pain for what she had done,” Yadav said.

SBF’s defense team sought a maximum prison sentence of 6.5 years, but Kaplan said Ellison’s testimony ultimately proved decisive in his decision to sentence Bankman-Fried to nearly four times that term.

Kaplan also sided with federal prosecutors when he revoked Bankman-Fried’s bail and sent him back to prison on witness tampering charges after he leaked diary entries written by Ellison. Kaplan described Bankman-Fried’s leak as intended to “harm” and “discredit” Ellison.

Ellison “has suffered numerous public humiliations over the past two years, often with sexist overtones,” Yadav said.

Most judges don’t like to send people to prison who don’t pose a threat to others in the future, said former federal prosecutor Paul Tuchmann.

“The chances that Ellison could harm anyone again through criminal behavior in the future are very low,” Tuchmann said.

If Kaplan ends up waiving prison time as part of Ellison’s sentence, it could bode well for former FTX CTO Nishad Singh and Gary Wang, FTX’s co-founder and CTO. Singh and Wang are scheduled to be sentenced on October 30 and November 20, respectively.

“I think Judge Kaplan can afford not to give these people prison time if he wants to,” Tuchmann said, adding that “most judges want to encourage these types of people to cooperate, and a sentence that is consistent with prison time and probation is the best way to do that.”

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