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Caroline Ellison sentenced to two years in prison for involvement in FTX fraud

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Caroline Ellison sentenced to two years in prison for involvement in FTX fraud

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(This story has been updated to add new information.)

The fallout from a billion-dollar fraud that bankrupted cryptocurrency company FTX two years ago and plunged some markets into chaos continued on Tuesday when former crypto executive Caroline Ellison was sentenced to 24 months in prison.

Ellison, the former CEO of FTX's sister firm and crypto hedge fund Alameda Research who is now a romance novelist, described herself as a remorseful participant in the scam. Prosecutors said her cooperation helped convict the FTX mastermind and her ex-boyfriend Sam Bankman-Fried in 2023.

The crimes to which Ellison pleaded guilty would carry a maximum sentence of 110 years.

“She cooperated, and he denied everything,” said U.S. District Judge Lewis Kaplan. “He went to trial, as was his right, and it didn't go so well. The reason it didn't go so well is in significant part because Ms. Ellison cooperated.”

The verdict caps a confusing journey for Ellison, who had set philanthropic goals as she rose to prominence in the crypto world. In her testimony against Bankman-Fried, she described a chaotic environment in which lying and stealing could be justified in the name of the common good – and she expressed a sense of relief when it all came crashing down.

“Not a day goes by that I don't think about all the people I've hurt,” Ellison said in court. “My brain can't even really comprehend the extent of the suffering I've caused. That doesn't mean I don't try.”

Who is Caroline Ellison?

Ellison grew up in Boston and was a successful student. She was the daughter of an economics professor and lecturer at MIT. She studied mathematics at Stanford and advocated the philosophy of “effective altruism,” which encourages crunching numbers to determine which charitable donations would do the most good for society.

Bankman-Fried, also a child of academics and a member of the effective altruism movement, met Ellison at a Wall Street trading firm when he was assigned as a mentor to her class of interns. Eventually, the pair began dating on and off, and she became involved in his once-adored cryptocurrency empire.

Ellison pleaded guilty to seven counts of fraud and conspiracy in connection with the FTX scandal.

In March, Bankman-Fried was sentenced to 25 years in prison for stealing about $8 billion from customers of the now-bankrupt cryptocurrency exchange he founded. This month, Bankman-Fried filed an appeal and asked for a retrial with a new judge, claiming he was denied a fair trial last year.

What is the FTX scam scandal?

FTX, short for “Futures Exchange,” benefited from a boom in cryptocurrency prices during the COVID pandemic, according to Forbes, which led to Bankman-Fried achieving billionaire status.

He rode this wave of success until his company faltered and filed for bankruptcy in 2022. The following year, a New York jury concluded that his empire was built largely on fraud.

Bankman-Fried was accused of improperly diverting client funds from FTX to Alameda Research, the hedge fund he founded and which Ellison ran from 2021 to 2022.

What role did Ellison play in the fraud scandal?

During Bankman-Fried's trial, Ellison told the jury that he directed her to accept money from unsuspecting FTX customers. In her tearful testimony, she expressed remorse for her actions and said she felt “bad beyond words” for participating in the scam.

“I felt a sense of relief that I no longer had to lie,” Ellison testified.

Mark Cohen, Bankman-Fried's defense attorney, accused Ellison in his closing argument of “pointing the finger at Sam” to avoid blame after the company's collapse.

Ellison's lawyers argued that she should not receive a prison sentence because of her intensive cooperation with prosecutors. The Manhattan district attorney's office, which brought the prosecution, also argued for leniency in a letter to the judge, citing her “extraordinary” help in convicting Bankman-Fried and her acceptance of responsibility for her wrongdoing.

Reuters contributed to this report. Reach Rachel Barber at [email protected] and follow her on Twitter at @rachelbarber_.

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