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Caroline Ellison is about to flip on Sam Bankman-Fried

“There’s no honour among thieves” is maybe an over-used adage, but if it is, that’s only because it holds so true—and the FTX scandal is proving to be no exception.

Caroline Ellison, the 28-year-old ex-CEO of Alameda Research and Sam Bankman-Fried’s supposed romantic partner, was spotted in New York City a few days ago at a coffee house just blocks away from FBI offices.


This is notable because Ellison is supposed to be in hiding somewhere in Dubai or Hong Kong. Her return to the States without being escorted by extradition order-wielding federal agents points in at least one clear direction: she’s in town to negotiate with investigators and roll on the don, Bankman-Fried.

Though precise blame is still being weighed and apportioned as the smoke clears, FTX and its employees appear to have been engaged in rampant fraud in misusing customer assets, and the scale of the offending makes FTX look like a criminal racket with each new revelation. If true, Ellison’s cooperation with investigators will likely be remembered as the first stage in dismantling the FTX empire, which is currently being examined by the Department of Justice and multiple U.S. regulators and will likely be viewed as a criminal RICO enterprise when all is said and done.

That the authorities managed to flip Ellison specifically is particularly disastrous for Bankman-Fried and should prove highly illuminating for the rest of us: not only was she one of his most senior deputies via her CEO role at Alameda, but it also appears she was in a romantic relationship with SBF. In other words, in addition to exposing the inner workings of the FTX group, she’ll also be able to shed light on the risible “aw shucks” routine Bankman-Fried has been trotting out in public in the hopes of fooling prosecutors into thinking he is but a simple, idealistic whizz kid who lost sight of his own company’s activities, allowing it to take off with billions of dollars in client funds without his knowledge.

It’s all a lie, of course: one of the few things Ellison is known to have done since the scandal erupted is confirm to Alameda employees that $10 billion worth of FTX customer funds were transferred to Alameda and that she, Bankman-Fried and two other executives knew about the movement.

And while Bankman-Fried has happily used the Financial Times, the New York Times, and multiple Twitter broadcasts to put this tactic to the test; he has flatly refused to appear before Congress to testify about the collapse and his role in it.

In addition, Bankman-Fried was assuring customers that FTX funds were safe even as staff began sealing the exits and billions of dollars were being transferred from FTX to Alameda, to say nothing of his self-confessed scheme to use charity and regulatory engagement as a smokescreen for what amounted to an enormous Ponzi.

Ellison is listening to her lawyers

Bankman-Fried’s behavior in the wake of the FTX collapse starkly contrasts with that of Ellison, who seems to actually be listening to the lawyers.

Besides a short series of tweets as the story unfolded, Ellison has been radio silent: no weeping lamentations on social media, no NYT interviews, no on-stage appearances. These approaches have obviously led to dramatically different optics. While Bankman-Fried was callously confessing to Vox that his effective altruism shtick was a front, Ellison was nowhere to be seen. And now it seems that as Bankman-Fried was spending this past weekend with the FT, clumsily walking back his prior statements about not knowing anything about Alameda’s financial health, Ellison was spending her time where it matters: in front of investigators.

Ira Sorkin, who famously represented Bernie Madoff, gave Bankman-Fried a warning via Bloomberg:

“You’re not going to sway the public. The only people that are going to listen to what you have to say are regulators and prosecutors.”

Unfortunately for Bankman-Fried, it seems Ellison got there first.

In a delicious bit of irony, it’s this press tour that might have finally pushed Bankman-Friend’s former lover to turn state’s witness. Between the lines of Bankman-Fried’s public statements of the last few weeks have been subtle deflections of responsibility toward other figures within FTX, not least of all Caroline Ellison.

In an interview with New York Magazine published December 1, Bankman-Fried was very clear: he had a good sense of the financials at FTX US and FTX International, but the problem was that the Ellison-run Alameda entity had “gotten leveraged” (ignoring the fact that FTX’s most egregious sin was misappropriating customer funds to plug that hole in Alameda).

Similar buck-passing can be seen in his interview with the New York Times, too:

“I was frankly surprised by how big Alameda’s position was, which points to another failure of oversight on my part and failure to appoint someone to be chiefly in charge of that.”

In a Twitter Spaces session from last Thursday, he responded to a question about Caroline by saying, “Caroline and I had been together for a while. I don’t control her. I never did.”

Though Bankman-Fried has stopped short of explicitly blaming Ellison, he’s spent a lot of energy telling the world that his problem was a lack of oversight over his own company while implicitly highlighting that oversight was given to Ellison.

Speak now or face RICO

Putting any newly formed beef between Ellison and SBF aside, if Ellison has indeed decided to cooperate with the authorities, then it’s the best move she’s made since deleting her polyamory Tumblr blog.

Why? Because Ellison has no doubt realized the role she has played in a pattern of illegal activity, which almost certainly brings her (and any other FTX group employee doing the organization’s dirty work) within the ambit of the U.S. RICO (Racketeer Influenced and Corrupt Organisations) Act. Originally used by law enforcement to pursue large-scale criminal organizations like the Mafia, the RICO Act applies to any criminal organization engaging in a pattern of ‘racketeering activity,’ which is defined to include money laundering and fraud.

Under RICO, any corporate partitioning designed to make the entities look distinct on paper will be useless: it is the practical reality that matters in assessing a criminal enterprise, as pointed out by the U.S. Supreme Court in Boyle v. Unites States, one of the leading RICO authorities:

“Such a group need not have a hierarchical structure or a ‘chain of command’; decisions may be made on an ad-hoc basis and by any number of methods – by majority vote, consensus, a show of strength….The group need not have a name, regular meetings, dues, established rules and regulations, disciplinary procedures, or induction or initiation ceremonies… Nothing in RICO exempts an enterprise whose associates engage in spurts of activity punctuated by periods of quiescence.”

The closely knit web of FTX companies qualifies based on what we already know about FTX’s use of client funds. In fact, Alameda almost certainly already settled a civil suit in which it was being accused of running a RICO enterprise in 2020.

Individual employees can be prosecuted under RICO, and each individual count of racketeering carries a maximum penalty of 20 years in prison. What’s more, RICO action can be taken on both a criminal and civil basis, either by law enforcement or private citizens. Anyone who has been injured by a RICO violation can bring a civil suit for compensatory and treble damages.

With that kind of sword hanging over FTX’s executives and employees, it’s a wonder that Ellison has waited this long to flip on Bankman-Fried. It is surprising that there isn’t already a queue of former FTX employees stretching out from the FBI’s offices and wrapping around downtown Manhattan.

Maybe there is.

Regardless, we are firmly in ‘every (wo)man for themselves’ territory at this point. Perhaps Ellison will be willing to testify before Congress in Bankman-Fried’s absence?

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