Who is Caroline Ellison, the trader at the center of the FTX meltdown?

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For four years, Caroline Ellison and Sam Bankman-Fried worked together to build a crypto empire. Ellison managed the hedge fund connected to FTX, the Bankman-Fried cryptocurrency exchange founded in 2019.

In addition to work, the two had a lot in common: both were the children of gifted academics, studied mathematics at prestigious universities, and publicized the importance of donating money to make the world a better place. Both also lived with roommates in a luxury penthouse in the Bahamas and were sometimes romantically involved.

Now, however, Ellison has parted ways with Bankman-Fried in a big way: She is cooperating with federal prosecutors who have accused him of orchestrating one of the biggest financial frauds in US history.

Last month, Ellison, 28, pleaded guilty to charges that she, Bankman-Fried and other FTX executives conspired to steal their clients’ money to invest in other companies, make political donations and buy expensive real estate – allegations carrying a maximum sentence of 110 years in prison. On December 19th hearing, Ellison apologized to FTX clients and investors, saying he knew what he had done was wrong.

Bankman-Fried, 30, is due to appear in court on Jan. 3, when he will likely plead not guilty, according to a person familiar with the matter who spoke on condition of anonymity to discuss private information. In numerous interviews prior to his December 12 arrest, he insisted he was only guilty of maladministration and did not intentionally defraud anyone.

Former FTX chief technology officer Gary Wang, 29, also pleaded guilty. Lawyers for Ellison and Wang did not respond to requests for comment. Mark Botnick, a spokesman for Bankman-Fried, declined to comment.

Ellison’s deal with the government could be bad news for Bankman-Fried. The fact that she and Wang quickly pleaded guilty and signed the plea agreements suggests they will testify against Bankman-Fried in court, said Neama Rahmani, a Los Angeles attorney and former federal prosecutor. “They are cooperating fully,” he said.

If Ellison provides substantial assistance to prosecutors, the government will ask the judge to take that into account when sentencing her. Defendants often agree to testify against their alleged co-conspirators to lessen their own sentences. If Ellison helps the government, Rahmani estimates her sentence could reach five years, compared with Bankman-Fried’s likely sentence of 10 to 20 years, he said.

Podcast Post Reports: The Fall of FTX

Ellison’s rise to become one of the most important figures in the cryptocurrency world has been rapid. In a July 2020 interview on FTX’s internal podcast, she described her childhood, upbringing and a quick tour of Wall Street before landing at Alameda Research, the Bankman-Fried-owned hedge fund that was closely integrated with FTX.

While Bankman-Fried’s parents are Stanford law professors, Ellison’s mother and father are professors of economics at the Massachusetts Institute of Technology. Her father, who wrote math textbooks for children, got her to study math at a young age. She also read a lot, dealing with a thick Harry Potter book when she was just 5, because she was too impatient to wait for her parents to read it to her, she said.

Her father encouraged her and her sisters to enter math competitions, which she maintained through middle and high school before studying math at Stanford in 2012. She chose the University of the Bay Area in large part because it was the “best school I can’t afford.” exists in Boston,” she said.

Not knowing what to do with her degree, she applied for internships her freshman year at quantitative trading companies, which use math and complex algorithms to predict market movements.

Ellison did two internships at Jane Street Capital, a large quantitative trading firm, and was offered a job after college, she said. It was there that she met Bankman-Fried, who had worked for the company’s New York office for several years. In 2017, he quit his job and moved to the Bay Area, where a year later Ellison asked to meet with him. “He canceled a few times and ended up accepting it,” she said.

Bankman-Fried told her about the cryptocurrency trading company he had recently founded – Alameda Research. Soon, she left Jane Street to join him. “It seemed like too cool an opportunity to pass up,” she said.

Crypto is a house of cards?

In a Tumblr blog linked to her Twitter account, Ellison said that she didn’t come into crypto as a “true believer”. “It’s mostly scams and memes once you start doing it,” she says in a post on an archived version of her Tumblr account. But she saw value in the core technology behind cryptography, which allows transactions without the mediation of a bank or government.

“If authoritarian governments are a serious threat to civilization, which doesn’t seem entirely insane, it could turn out to be important,” reads the remainder of the post, dated March 24, 2022.

At FTX, though, Ellison’s job was less about dodging authoritarian governments and more about making money from exploding interest rates and investments in cryptocurrencies. The company was one of the biggest winners of the huge cryptocurrency boom from 2020 to 2021, when ordinary people around the world invested in bitcoin, ethereum and a host of other tokens. The world market value has risen to around $3 trillion, about the same as the UK’s gross domestic product.

FTX quickly grew as one of the top places where people could buy, sell and speculate on cryptocurrencies. His ads featured sports stars like Tom Brady and Stephen Curry, and he paid millions for the naming rights to the home stadium of the Miami Heat basketball team. Many users were investing on margin, meaning they were making financial bets with money borrowed from the exchange, hoping their investments would pay off. As of late 2021, FTX was handling around $350 million worth of crypto transactions a day, earning money on a percentage of each transaction.

Alameda was technically separate from FTX, investing and trading with the aim of making money like any other hedge fund. But it also played a key role as a market maker on the FTX exchange itself, stepping in to buy and sell tokens and other digital assets. in large volumes to increase liquidity on the exchange and make it more attractive to customers.

In interviews, Ellison has spoken about the challenges and excitement of the job.

“There are a lot of people who are very smart but not necessarily good in the confusing world of trading, especially crypto trading,” she said on the El Momento crypto podcast published on May 25, 2022. “You never have all the information . So you just have to make your best guess based on what you can see.”

She advanced within the company and Bankman-Fried named her co-CEO, along with Sam Trabucco, in 2021. In August 2022, Trabucco stepped down and Ellison became the sole leader of Alameda. (Trabucco did not respond to a request for comment, and her whereabouts are unknown.) In a January 2021 podcast, Ellison described how she was in charge of the negotiations, with Bankman-Fried’s involvement diminishing over time.

The job was extremely lucrative. At its peak, FTX was valued by its venture capitalists at $32 billion, giving Bankman-Fried a net worth of $26 billion as of spring 2022, according to the Bloomberg Billionaires Index. Bankman-Fried, Ellison, and a group of colleagues lived in a luxury penthouse in Nassau, Bahamas, worth $40 million. The employees were romantically involved with one another, and Bankman-Fried and Ellison dated at times, according to a report by crypto news agency CoinDesk. Stimulants were part of the lifestyle.

“Nothing like regular amphetamine use to make you appreciate how silly the normal, non-drug human experience is,” Ellison tweeted last year.

Like Bankman-Fried, Ellison was an advocate of effective altruism, a philanthropic philosophy that encourages smart young people to take high-paying jobs, accumulate wealth, and give it away. She discovered the movement while studying at Stanford, surrounded by smart, soon-to-be-rich people like her.

“I think the ultimate goal, or one of my most important goals, is to maximize my impact,” she said in the July 2020 podcast interview. “Working at Alameda is good for this for a few reasons. I mean, the direct thing is making money.”

Bankman-Fried himself had pledged his billions to the movement. In an interview posted on January 21, 2021, also with the internal podcast FTX, Ellison returned to talk about how she saw value in the work she was doing.

“It’s definitely stressful at times, but it gives me a sense of purpose and meaning to feel like I’m needed or to feel like what I’m doing is valuable,” Ellison said.

The ‘crypto winter’ has arrived. And it’s looking like an ice age.

Behind the scenes, however, FTX was allegedly breaking the law, according to federal prosecutors. The company took customer deposits and loaned them to Alameda, which used the money to make risky deals, invest in other companies, and donate to politicians and effective altruism groups.

Alameda had special access and privileges on the FTX exchange that the companies’ clients did not, essentially allowing it to borrow freely without having to pay back loans or face the same consequences if it lost money on trades made with borrowed funds – a practice Ellison had been aware of since 2019, she testified earlier this month.

In November, Bankman-Fried told the New York Times DealBook conference that he never intentionally mixed funds between Alameda and FTX and that he was surprised by the size of Alameda’s exposure on the FTX exchange.

“Clearly, I made a lot of mistakes. There are things I would give anything to do again. I have never tried to commit fraud with anyone,” he said.

Alameda borrowed large amounts of money from other crypto lenders to fund Bankman-Fried’s investments and donations, but as the price of crypto assets plummeted through 2022, these lenders demanded their money back. Ellison and her colleagues paid with the customer’s money, she said, something platform users were unaware was happening.

And when investors asked questions, she, Bankman-Fried and other colleagues agreed to lie, covering up the company’s true financial situation and special arrangements for Alameda to freely use clients’ assets, Ellison told the judge.

“I agreed with Mr. Bankman-Fried and others in providing materially misleading financial statements to Alameda’s creditors,” she said. “I am really sorry for what I did. I knew it was wrong.”

The judge asked if she, too, knew it was illegal.

Dalton Bennett and Nitasha Tiku contributed to this report.


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