Love Lost: How Sam Bankman-Fried’s ex Caroline Ellison led to his downfall

Sam Bankman-Fried, once known as the ‘Crypto King’, has been sentenced to 25 years in prison by a court in the United States for defrauding customers and investors of his now-bankrupt crypto exchange FTX. The downfall of the former billionaire unravelled with the dramatic collapse of his firm in late 2022.

US District Judge Lewis Kaplan on Thursday (28 March) remarked how he calculated Bankman-Fried’s sentence. As per BBC, the testimony of Bankman-Fried’s ex-girlfriend and Alameda chief executive Caroline Ellison played a big role in the sentencing.

Who is she and how did she help with the downfall of the ‘Crypto King’?

Let’s take a closer look.

Who is Caroline Ellison?

Caroline Ellison was the CEO of crypto hedge fund Alameda Research connected with Bankman-Fried ’s FTX.

As per an Independent report, she first met Bankman-Fried at Jane Street Capital, a Wall Street trading firm, in 2015. He taught her class of interns how to trade and it was here that Ellison got attracted to him.

Three years later, Bankman-Fried, a Massachusetts Institute of Technology graduate, quit his job as a quantitative trader at Jane Street and founded the crypto trading firm Alameda Research.

Ellison joined his company in 2018 at Bankman-Fried’s insistence.

Like Bankman-Fried, she was interested in “effective altruism”, a philosophy that entails making large sums of money to help others. In 2021, Ellison was named the co-CEO of Alameda, as Bankman-Fried started focusing more on FTX, the trading platform he launched in 2019.

Later, she was promoted to CEO but got just $200,000. However, she was awarded $20 million in bonuses that year following Alameda’s success, reported Mirror.

The duo, however, did not have just a professional relationship. As per Mirror, they dated for about a year in 2018. However, she ended the relationship because he was “distant” and not “paying attention to her”.

“I would say in our personal relationship there was a general theme that I sort of wanted more from our relationship but often felt like he was distant or not paying attention to me,” she testified in a federal court in Manhattan last October.

Last July, New York Times published an article quoting her personal writings from early 2022, wherein she described feeling “unhappy and overwhelmed” at work and “hurt/rejected” after the breakup.

Caroline Ellison’s testimony

While FTX was booming, Alameda’s finances were down the drain. The company had lost millions over the years, which meant it did not have sufficient money to trade with and repay customers when they demanded their money back, reported Independent.

This is how the fraud began.

Ellison was considered the star witness in the multi-billion-dollar fraud case against Bankman-Fried. During her testimony last year, she told the court that he asked her to steal some $10 billion from FTX’s customers and use that to repay firms that Alameda Research had borrowed money from, reported NBC News.

But it all came tumbling down in November 2022 when crypto trade publication Coindesk released a leaked balance sheet revealing that Alameda and FTX were “unusually close” and much of the former’s $14.6 billion in assets was held in FTX’s own token, called FTT.

The story created ripples around the world and FTX customers started withdrawing their funds, ultimately resulting in the crypto firm filing for bankruptcy and Bankman-Fried stepping down as CEO.

Both Ellison and Bankman-Fried were arrested and pleaded innocence. Later, she struck a deal with prosecutors and changed her plea, reported Independent.

It came to light that Bankman-Fried not only used customer money to pay Alameda’s debts but also funded his lavish lifestyle. According to Ellison, he once told her that he had a five per cent chance to “become (US) president someday”.

She told the court that her ex-partner was a utilitarian, meaning “he thought the only moral value that mattered was whatever would maximise utility”.

“He said that he was a utilitarian, and he believed that the ways that people tried to justify rules like ‘don’t lie’ and ‘don’t steal’ within utilitarianism didn’t work, and he thought that the only moral rule that mattered was doing whatever would maximise utility, so essentially trying to create the greatest good for the greatest number of people or beings,” Ellison testified at his trial.

According to Ellison, Bankman-Fried blamed her for Alameda’s financial woes. His lawyers threw her under the bus, arguing that Ellison mismanaged the company, including by not making protective hedge trades that could have shelved the risk of big losses, reported NBC News.

According to Ellison, it was Bankman-Fried who directed her to manipulate Alameda’s balance sheet by showing the increasing value of the FTT tokens so it could get loans.
She did the same with other coins that got a great deal of value, reported NBC News.

In June 2022, several crypto firms and exchanges failed which led to investors collectively withdrawing about $1 trillion out of the market.

As some of Alameda’s lenders also came knocking demanding their money back, Bankman-Fried told her to repay them by taking money from FTX customers.

She said she had taken $14 billion to $15 billion from FTX’s users by October 2022. However, CoinDesk’s story brought their world crashing down.

Ellison, who had faced a “constant state of dread” at Alameda’s finances, said she felt an “overwhelming feeling of relief” as she wouldn’t have to “lie anymore”.

Her crucial testimony gave the jurors an insight into the world of the 32-year-old cryptocurrency whiz kid. The fate of Ellison, who pleaded guilty to several fraud charges last year, is yet to be decided.

With inputs from agencies