Who is Caroline Ellison, the trader at the center of FTX’s collapse?

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

Beyond work, the couple had a lot in common: Both were children of accomplished academics, studied math at prestigious universities, and touted the importance of giving money away to make the world a better place. The two also lived with co-workers in a luxury penthouse in the Bahamas and were reportedly romantically involved at times.

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

Last month, Ellison, 28, pleaded guilty to charges alleging that she, Bankman-Fried and other FTX executives conspired to steal clients’ money to invest in other businesses, make political donations and buying expensive real estate charges carries a maximum sentence of 110 years in prison. During a December 19 hearing, Ellison apologized to FTX customers and investors, saying she knew what she had done was wrong.

Bankman-Fried, 30, is next due in court on January 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 before his arrest on December 12, he insisted he was only guilty of mismanagement and did not knowingly 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. Bankman-Fried spokesman Mark Botnick 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 agreements suggests they will testify against Bankman-Fried in court, said Neama Rahmani, a Los Angeles-based 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 she is ultimately sentenced. Defendants often agree to testify against their alleged accomplices to reduce their own sentences. If Ellison helps the government, Rahmani believes his sentence could be as short as five years, compared to Bankman-Frieds’ likely sentence of 10 to 20 years, he said.

Post Reports Podcast: The Downfall of FTX

Ellisons’ rise to become one of the most important figures in the crypto world was swift. In a July 2020 interview on FTX’s Internal Podcast, she described her childhood, upbringing, and quick tour of Wall Street before landing at Alameda Research, the Bankman-Fried-owned hedge fund that was tightly integrated with FTX. .

While Bankman-Frieds’ parents are professors of law at Stanford, Ellison’s mother and father are professors of economics at the Massachusetts Institute of Technology. Her father, who wrote math textbooks for children, introduced her to math at an early age. She read a lot too, tackling a thick Harry Potter book when she was just 5 years old because she was too eager 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 school and high school before studying math at Stanford in 2012. She chose the University of the Bay Area largely because it was the best school not in Boston. , she said.

Unsure what to do with her degree, she applied for internships during her freshman year at quantitative trading companies, which use complex math and algorithms to predict market movements.

Ellison completed two internships at Jane Street Capital, a major quantitative trading firm, and received a job offer after college, she said. It was there that she met Bankman-Fried, who had worked in the company’s New York office for several years. In 2017, he quit and moved to the Bay Area, where a year later Ellison asked to meet him. He canceled several times and finally said yes, she said.

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

Is crypto a house of cards?

On a Tumblr blog linked to her Twitter account, Ellison said she didn’t get into crypto as a true believer. It’s mostly scams and memes when you get to it, reads a post on an archived version of the Tumblr account. But she saw the value in the core technology behind crypto, which enables transactions without a bank or government hyping them up.

If authoritarian governments are a serious threat to civilization, which doesn’t sound entirely insane, it could end up mattering, reads the rest of the post, dated March 24, 2022.

At FTX, however, Ellison’s job was less about dodging authoritarian governments and more about making money from the explosion of cryptocurrency interest and investment. The company was one of the biggest winners in the massive crypto boom of 2020-2021, when everyday people around the world invested in bitcoin, ethereum, and a host of other tokens. The value of the global market has swelled to around $3 trillion, roughly the same as the UK’s gross domestic product.

FTX quickly grew as one of the main 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 stadium naming rights for Miami Heat basketball teams. Many users were investing on margin, which means they placed financial bets with money borrowed from the stock exchange, hoping that their investments would pay off. At the end of 2021, FTX was processing around $350 million in crypto trades daily, making money by taking a percentage of each trade.

Alameda was technically separate from FTX, investing and trading with the goal of making money like any other hedge fund. But it has 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 of the challenges and excitement of the job.

There are a lot of people who are very smart but not necessarily good in the very messy 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 just make your best guess based on what you can see.

She progressed through the company and Bankman-Fried named her co-CEO, along with Sam Trabucco, in 2021. In August 2022, Trabucco resigned and Ellison became the sole executive officer of Alamedas. (Trabucco did not respond to a request for comment and his whereabouts are unclear.) In a January 2021 podcast, Ellison described how she was in charge of the trade, with Bankman-Frieds’ involvement waning with time.

The work 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 in the spring of 2022, according to the Bloomberg Billionaires Index. Bankman-Fried, Ellison and a group of their colleagues lived in a lavish penthouse in Nassau, Bahamas, worth $40 million. The employees had a romantic relationship with each other, and Bankman-Fried and Ellison sometimes dated, according to a report from crypto news outlet CoinDesk. Stimulants were part of the way of life.

Nothing like regular amphetamine use to make you appreciate how stupid a normal, drug-free human experience is, Ellison tweeted last year.

Like Bankman-Fried, Ellison was a proponent of effective altruism, a philanthropic philosophy that encourages smart young people to take well-paying jobs, amass wealth, and donate it. She had found movement at Stanford, surrounded by smart, soon-to-be-rich people like her.

The ultimate goal, or one of my most important goals I think, is to maximize my impact, she said in the July 2020 podcast interview. Working at Alameda is kind of good for that for several reasons. I mean, the direct thing is to make money.

Bankman-Fried himself pledged to donate his billions to the movement. In an interview posted on January 21, 2021, also with the FTX Internal Podcast, Ellison spoke again about the value she places on the work she does.

It’s definitely stressful at times, but it gives me meaning and meaning to feel like I need them or feel like what I’m doing is valuable,” Ellison said.

The “crypto winter” has arrived. And it looks like an ice age.

Behind the scenes, however, FTX allegedly broke the law, according to federal prosecutors. The company took deposits from customers and loaned them to Alameda, which used the money to make risky trades, invest in other businesses, and donate to politicians and effective altruism groups.

Alameda had special access and privileges on the FTX exchange that the company’s customers did not have, essentially allowing it to borrow freely without having to repay loans or suffer the same consequences if it lost money. money on transactions he made with borrowed funds, a practice Ellison was aware of. as early as 2019, she testified earlier this month.

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

Clearly, I made a lot of mistakes. There are things I would give anything to be able to do again. I never tried to defraud anyone, he said.

Alameda borrowed huge sums of money from other crypto lenders to fund Bankman-Frieds’ investments and donations, but as the price of crypto assets fell through 2022, these lenders demanded their repayment. Ellison and her colleagues repaid it with customers’ money, she said, something users on the platforms were unaware of was happening.

And when investors asked questions, she, Bankman-Fried and other colleagues agreed to lie, concealing the company’s true financial situation and the special provisions allowing Alameda to freely use client assets, a Ellison told the judge.

I agreed with Mr. Bankman-Fried and others to provide materially misleading financial statements to Alamedas lenders, she said. I’m really sorry for what I did. I knew it was wrong.

The judge asked her if she also knew it was illegal.

Dalton Bennett and Nitasha Tiku contributed to this report.

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