Caroline Ellison Strikes Plea Agreement with SDNY

Former CEO of Alameda Research, Caroline Ellison, and co-founder of FTX, Gary Wang, have both admitted to charges related to the fiery crash of the cryptocurrency exchange, announced US Attorney for the southern district of New York Damian Williams in a statement late on Wednesday.

Both Wang and Ellison are cooperating with the Department of Justice investigation into the actions of former FTX chief executive Sam Bankman-Fried (SBF), he added.

The federal charges were released on the same evening SBF was on his way from the Bahamas to New York City, where he faces eight federal criminal charges, including money laundering, wire fraud, securities fraud, and campaign finance violations from the same prosecutors who accepted the plea deals with Ellison and Wang.

Williams also confirmed in his statement that the Bankman-Fried was in FBI custody and would appear in court “as soon as possible.”

SBF was arrested in the Bahamas last week after US authorities pressed charges against him over what prosecutors call “one of the biggest financial frauds in American history.”

Among other alleged wrongdoing, he is accused of stealing the FTX customer deposits to spend on Alameda's risky bets, giving political donations, and paying for everything from luxurious beachfront homes to private jet flights.

At its peak, FTX facilitated $20 billion worth of daily trades, and only a select group of insiders, including Ellison and Wang, are among those who knew that FTX was engaging in fraud.

The SEC alleged both Ellison and Wang, in the pair's respective roles at Alameda and FTX, aided and abetted SBF in the fraud of FTX customers.

“If you participated in misconduct at FTX or Alameda, now is the time to get ahead of it. We are moving quickly, and our patience is not eternal,” Williams said. “We continue to work around the clock, and we are far from done,” he added.

The SEC has also filed charges against Ellison and Wang and alleges that they worked with SBF's firm to transfer hundreds of millions of dollars in FTX's customers' cryptocurrency trading funds to Alameda Research, a hedge fund, once the firm realized it did not have sufficient assets to reimburse customers.

Who is Caroline Ellison?

Caroline Ellison, 28, joined the Alameda team in 2018 as a trader and then was promoted to the co-CEO role, along with Sam Trabucco, who later left the company in August 2022, in the fall of 2021, when Bitcoin was trading at around $57,000.

During her chat with another FTX employee, Tristan Yver, for a company podcast episode in July 2020, Ellison shared that she grew up in Newton, just outside of Boston.

Her parents are economics professors at the Massachusetts Institute of Technology (MIT). Ellison's father, Glenn Ellison, is the department head of economics at MIT and once reported directly to current SEC Chair Gary Gensler. Meanwhile, her mother, Sara Fisher Ellison, is an economics lecturer at MIT.

While discussing her background and upbringing, Ellison shared that she had a natural aptitude for math and went on to major in math at Stanford. Like SBF, Ellison began exploring effective altruism in college. Later, she snagged a trading internship at high-profile firm Jane Street Capital and then worked there full-time for a year and a half.

Ellison met SBF at Jane Street, who worked there from June 2014 to September 2017. She learned about Alameda over coffee with SBF while visiting the Bay Area and decided “it seemed like too cool of an opportunity to pass up.”

According to a CoinDesk report, they were involved in polyamory with eight other FTX and Alameda members in the Bahamas. Tumblr posts linked to Ellison have also posted about group relationship styles, likening the atmosphere to an “imperial Chinese harem.”

“None of this non-hierarchical bullshit; everyone should have a ranking of their partners, people should know where they fall on the ranking, and there should be vicious power struggles for the higher ranks,” she wrote in a February 2020 post.

Ellison was not mentioned in FTX's first-day bankruptcy filing but was discussed briefly in the SEC documents related to SBF's arrest. Now she has pleaded guilty to seven counts of criminal charges, including wire fraud, conspiracy to commit securities fraud, and money laundering.

Meanwhile, Plead might come as no surprise to some, given she was allegedly seen in a cafe a short walk away from the US attorney's office and FBI's office in New York City on Dec. 5, leading many to suspect she was working with authorities.

Shortly after that, Ellison retained the law firm WilmerHale to represent herself, which counts former director of the SEC's Division of Enforcement Stephanie Avakian as one of its top attorneys.

Now, according to her plea deal with the U.S. Attorney's Office of the Southern District of New York, Ellison won’t be allowed to leave the United States and is required to surrender her travel documents. She will also be permitted bail, but only if she can provide a $250,000 bond.

The unsealed plea agreement, a paragraph of which is redacted, also states that she will be required to pay restitution as determined by the court. She must also forfeit any proceeds gained from the offenses she has been charged with.

If Ellison fully cooperates with the SDNY's investigation along with other law enforcement agencies designated by the office, she won't be further prosecuted criminally except for the criminal tax violations, says the document. 

Role in FTX Implosion

This week, the slew of criminal and civil charges against the two top executives sheds light on more details of FTXs implosion, including how customers' assets were moved freely from the cryptocurrency exchange to FTX's sister company Alameda Research.

The SEC's complaint highlighted “false and misleading” public statements made by SBF multiple times, as well as documentation provided to investors through audited financial statements, that there was no preferential treatment for Alameda from FTX.

Ellison was specifically named in a complaint filed with the SEC for engaging in the artificial manipulation of the FTT, the self-issued FTX token, in an overall effort to increase the amount of collateral available to Alameda Research to lend at SBF's direction.

SBF, Ellison, and Wang “were active participants in a scheme to conceal material information from FTX investors” in order to “artificially prop up the value of FTT, which served as collateral for undisclosed loans that Alameda took out from FTX pursuant to its undisclosed, and virtually unlimited, line of credit,” said SEC Deputy Enforcement Director Sanjay Wadhwa in a statement.

Besides the “line of credit,” customers' funds were diverted into accounts controlled by Alameda from the start. This is why “there was no meaningful distinction between FTX customer funds and Alameda's own funds,” the SEC suit says.

With this move, Ellison and Alameda were given “carte blanche to use FTX customer assets for Alameda's trading operations and for whatever other purposes Bankman-Fried and Ellison saw fit.”

The SEC case further noted that Ellison tweeted an offer to buy Binance's entire stake in FTT for $22 at the direction of SBF. Other tweets on the integrity of Alameda's balance sheet from Ellison were also at the behest of SBF, the complaint said.

“As part of their deception, we allege that Caroline Ellison and Sam Bankman-Fried schemed to manipulate the price of FTT, an exchange crypto security token that was integral to FTX, to prop up the value of their house of cards,” said SEC Chair Gary Gensler.

He further alleged that both Ellison and Wang “played an active role in a scheme to misuse” the customer assets of FTX to strengthen Alameda's position and post collateral for margin trading.

“When FTT and the rest of the house of cards collapsed, Mr. Bankman-Fried, Ms. Ellison, and Mr. Wang left investors holding the bag,” said Gensler, adding: “Until crypto platforms comply with time-tested securities laws, risks to investors will persist.”

Much like the SEC, the Commodity Futures Trading Commission (CFTC) alleged that there was a sophisticated scheme in place to deceive investors and customers alike.

The derivatives market regulator also made allegations against Ellison and Wang, saying what Ellison did was a fraud as she made “material misrepresentations” tied to the FTT sales while alleging Wang “allowed Alameda to maintain an essentially unlimited line of credit on FTX.”

In an attempt to prevent a collapse of the FTT token price, Ellison and SBF began to liquidate Alameda Research's investments. Then, as panicked FTX customers began to withdraw their money from the exchange, Ellison and SBF asked Alameda researchers to “generally do anything possible to quickly obtain billions of dollars of capital to send to FTX,” as per the CFTC complaint.

In a meeting on Nov. 9, Ellison disclosed the facts on Alameda's misappropriation of FTX customer funds to the staff, the CFTC says. During that meeting, she also acknowledged that her offer to buy Binance CEO's FTT holdings at $22 per token on Twitter was misleading, and she regrets doing it.

The regulator also said that it has agreed on settlements with Wang and Ellison that are subject to court approval.

The agency has moved “aggressively to hold all individuals who commit fraud accountable and protect customers from additional harm and losses,” said CFTC Chairman Rostin Behnam.