FTX execs await sentencing as Alameda’s Ellison gets 2 years

Two former execs at the defunct FTX digital asset exchange are likely sweating buckets after their former colleague got two years in prison despite being a ‘star’ witness for the prosecution of their former boss.

Last week, Caroline Ellison was handed a two-year sentence for her role in the fraud that led to FTX’s abrupt downfall in November 2022. Ellison, the ex-CEO of the FTX-affiliated market-maker Alameda Research, was handed the custodial sentence despite Judge Lewis Kaplan of the U.S. District Court of the Southern District of New York claiming that he’d “never seen [a cooperating witness] quite like Ms. Ellison” in his 30 years on the bench.

FTX and Alameda imploded following the leak of an internal balance sheet that exposed an $8 billion discrepancy between the company’s assets and liabilities. Alameda had made some spectacularly bad ‘crypto’ trades, but rather than take its lumps, FTX/Alameda founder Sam Bankman-Fried (SBF) allowed Alameda to raid the cash in FTX customer accounts to paper over the cracks.

In March, SBF was sentenced to 25 years in prison after being found guilty on multiple charges of wire/securities fraud. SBF inexplicably opted against cutting a deal in favor of going to trial, where his evasive, incomplete and self-absolving answers to prosecutors’ questions earned him zero credibility with the jury.

Ellison cut a deal early on to testify against SBF, a move that helped seal SBF’s fate and which Ellison hoped would result in a sentence far shorter than the maximum 110 years that Kaplan could have imposed. Prosecutors noted the “substantial assistance” Ellison provided in securing SBF’s conviction, calling her cooperation “crucial” to their case and thus warranted a reduction in her sentence.

Ellison’s attorneys argued against any additional jail time whatsoever, claiming that she “regrets her role deeply and will carry shame and remorse to her grave.” Her newfound infamy resulting from the legal dustup—and her former lover, SBF, allegedly leaking her diaries to the media—had left her “wary of going out in public” for fear that she’d be recognized and ridiculed.

Ellison told Kaplan that she was “sorry I wasn’t brave” enough to speak up about the illegality that she herself oversaw, but “at each stage of the process it became harder and harder to extricate myself.” Ellison said she couldn’t “begin to imagine the pain I’ve caused,” adding that “not a day goes by that I don’t think about all of the people I hurt.”

Kaplan said he believed Ellison was “genuinely remorseful” about her actions, while SBF was only “sorry he got caught.” Ellison suggested that Ellison’s former relationship with SBF meant she was “vulnerable” and had been “exploited” by the FTX founder, whom he referred to as Ellison’s “kryptonite.”

But given the seriousness of the FTX fraud, Kaplan said that “a ‘get out of jail free’ card is not something I can see my way through to” granting. Kaplan handed Ellison a two-year sentence—of which she’ll have to serve at least 75%—in a minimum-security facility, followed by three years of supervised release to follow.

Ellison is also required to forfeit around $11 billion, the same figure Kaplan imposed when sentencing SBF. Neither of them is believed to have that cash, but putting it on the record is insurance against future revelations that FTX’s principals stashed any stolen loot that has yet to be uncovered.

Salame and meathead sandwich

The fact that Ellison is going to prison despite her extensive cooperation with prosecutors is likely causing some night sweats by Nishad Singh and Zixiao’ Gary’ Wang, FTX’s former head of engineering and co-founder/CTO, respectively.   

Both Singh and Wang reached their own cooperation agreements shortly after FTX’s implosion and testified against SBF at his trial. Singh will be sentenced on October 30, while Wang will have to wait until November 20 to learn his fate.

In May, Kaplan sentenced Ryan Salame to 90 months in federal prison but the former co-CEO of FTX Digital Markets was threatened with additional sanctions earlier this month. In a surprise development, Salame copped to lying to the judge about whether prosecutors had made any kind of side-deals to secure his guilty plea in September 2023.

Earlier this month, Salame filed court papers alleging that prosecutors had reneged on a deal that would see them halt probes into whether Salame’s significant other Michelle Bond had violated campaign finance violations.

Bond, who formerly acted as an FTX consultant, mounted an unsuccessful primary campaign for a New York congressional seat in 2022. In August, federal prosecutors indicted Bond for conspiring with Salame to illegally fund her campaign with hundreds of thousands of dollars provided by FTX.

The day before Bond’s indictment dropped, Salame asked the court to void his guilty plea, accusing the government of having “failed to abide by its word.” Salame’s lawyers accused prosecutors of using “Salame’s caring for the mother of his child against him. And that is an independent basis for granting Salame post-conviction relief.”

Prosecutors swiftly rejected Salame’s claims of any deal having been made. On September 12, an irate Kaplan summoned Salame, who has been out on bond post-sentencing and is set to begin serving his sentence on October 11.

Kaplan demanded to know why he should “let stand a conviction and sentence that I now know is based on false testimony before me in the plea allocution.” Kaplan accused Salame of having “induced” the judge into taking it easy on him in passing the sentence. At the conclusion of the hearing, Kaplan said he’d issue a ruling at an unspecified date regarding whether Salame had perjured himself.

SBF seeks new trial based on lack of happy pills

The day after Salame’s hearing, SBF filed an appeal of his own conviction with the U.S. Court of Appeals for the Second Circuit. The gist of the appeal is that Kaplan didn’t like SBF, and therefore, the mop-haired miscreant had been “presumed guilty” by the judge overseeing his trial.

Kaplan allegedly put his thumb on the scales of justice by making “biting comments undermining the defense” in the presence of the jury while “deriding” SBF’s meandering answers to questions posed by both prosecutors and Kaplan during the trial.

Prosecutors allegedly erred by presenting “a false narrative” that FTX customers’ cash was gone forever. FTX definitely didn’t have the cash at the time of its collapse, but one or two long-shot big-money investments SBF made—with customer cash—have since paid off, which will allow customers partial recovery of their account balances. SBF’s attorneys argue that “the jury was only allowed to see half the picture.”  

On September 20, an amicus brief was filed by a handful of doctors who claimed SBF didn’t get a fair trial because he wasn’t able to think straight without the heady cocktail of pseudo-speed to which he’d become accustomed.

SBF claimed to have been deprived of an adequate supply of his happy pills since his forced stay at the Manhattan Detention Center (MDC) in August 2023 for violating his bail conditions. This inability to pharma-focus was allegedly the source of the incoherent responses SBF offered on the witness stand that strained Kaplan’s patience.

Weirdly, SBF’s new cellmate at MDC is none other than Sean ‘Diddy/Puff Daddy/Puffy/Doo Wah Diddy’ Combs, whose speedy fall from grace mirrors SBF’s transition from ‘crypto’ wunderkind to cautionary tale. Combs, who was denied bail after being charged with sex trafficking and racketeering, is currently sharing the same living space as SBF and around 19 other inmates. Can an SBF-guesting remix of Act Bad be in the works?

First thing we do is kill all the lawyers

A different amicus brief was filed by five bankruptcy law professors who said the Department of Justice worked too closely with FTX’s bankruptcy lawyers, including the controversial Sullivan & Cromwell firm, which served as an FTX advisor prior to the exchange’s demise.

The professors take no position on SBF’s guilt or innocence, focusing their ire on the attorneys’ efforts to force SBF into filing for bankruptcy on FTX’s behalf and the subsequent coziness of these same attorneys with the prosecutors preparing criminal charges against SBF et al.

The lawyers handling FTX’s bankruptcy have collected hundreds of millions of dollars in fees, funds that otherwise would have gone to FTX’s cash-strapped customers. The professors also aren’t fans of John J. Ray III, the court-appointed CEO of the FTX Debtors group overseeing the bankruptcy restructuring.

“Congress did not enact chapter 11 of the Bankruptcy Code to make life easier for prosecutors. Yet, that is how Mr. Ray and S&C appear to have viewed their role at the Debtors. This perversion of their roles would be costly, and it would set a troubling precedent … Future prosecutors would understandably want to mimic the use of bankruptcy here, to exaggerate victims’ losses in a parallel criminal proceeding while enjoying tens of millions of dollars in creditor-subsidized, back-office support.”

Asked for comment, an FTX Debtors spokesperson told Reuters the brief was “brought by friends of Sam—not friends of the court, and their narrative has been thoroughly debunked. It is shameful that the authors of the brief, who are charged with teaching young aspiring lawyers, would suggest that cooperation with law enforcement is anything less than the most responsible conduct.”

A more positive view of S&C was voiced in the second report by FTX Examiner Robert Cleary, a follow-up to his first report in May. In that initial report, Cleary called for a probe into S&C’s actions while it was advising SBF on business matters, including his purchase of a significant stake in Robinhood Markets.

Cleary now says that S&C “did not learn of any FTX Group misconduct as a result of its Robinhood-related work, and it did not ignore any red flags that would have alerted it to such misconduct.”

The giant hole in making FTX creditors whole

FTX’s numerous creditors have yet to be reunited with the assets that were trapped on the exchange at the time of its demise and have been in limbo ever since. A bankruptcy court hearing has been scheduled for October 7 to consider the latest plan for distributing what’s left of those assets to creditors.

If approved, the plan could allow creditors owed less than $50,000 to see repayments before year’s end, while larger creditors might not get paid until midway through 2025. But the form and amount of those repayments has produced some angry protests.

FTX customers will be paid the cash value of their digital assets at the time of FTX’s implosion rather than receiving the quantity of the various digital assets they held in their accounts. Some of these tokens have surged in value in the nearly two years since the exchange shut down, gains that customers were unable to enjoy due to their lack of access.

FTX lawyers say this is to comply with bankruptcy laws and to ensure a swifter resolution to this long-running saga. Regardless, this plan isn’t sitting well with many creditors, particularly given plans to reserve a specific portion of the cash pool for FTX equity holders.

Meanwhile, some influencers are insisting that this cash flow to FTX’s former customers will spark a spike in the fiat price of major tokens as these customers buy back into the market. That is, assuming these customers haven’t had enough of this crooked ‘crypto’ casino by now.

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