Caroline Ellison, whose testimony helped convict Sam Bankman-Fried, faces her own sentencing

Analysis by Allison Morrow, CNN

New York (CNN) — A year ago, Caroline Ellison was preparing to testify against her former boss and ex-boyfriend in one of the biggest fraud trials in US history. On Tuesday, she’ll learn whether her own gamble — cooperating with prosecutors in the hopes of staying out of prison — will pay off.

A quick recap:

• FTX was a buzzy, celebrity-backed startup that allowed people to buy and sell digital assets.
• It collapsed in November 2022, when customers pulled their funds en masse amid rumors about FTX’s unusually close ties to its founder’s crypto hedge fund, Alameda Research.
• Ellison, who ran Alameda, pleaded guilty to seven federal counts of fraud and conspiracy shortly after FTX’s collapse. She was one of several company insiders to turn against Sam Bankman-Fried, who founded both firms, and pinpoint him as the leader of a scheme to defraud investors and steal $8 billion from FTX customer funds.
• Bankman-Fried, who pleaded not guilty, was convicted and sentenced to 25 years in prison. He filed his appeal last week.

Ellison’s testimony at Bankman-Fried’s trial last fall was crucial.

In a memo to Judge Lewis Kaplan last week, prosecutors praised Ellison’s candor and “substantial assistance” in the investigation — a fact that could help her duck jail time despite facing a similar list of charges as Bankman-Fried.

From the start, Ellison was the prosecution’s star witness — someone who worked hand in glove with Bankman-Fried and who kept a contemporaneous diary chronicling the ups and downs of their business and their often-rocky romantic relationship. And in a trial that centered on technical, complex topics like digital assets and decentralized finance, Ellison’s testimony offered an emotional and relatable narrative.

Over three days on the stand, Ellison, who is 29, repeatedly reinforced that throughout her years at Alameda, the buck stopped with Bankman-Fried. When asked who directed her to carry out various actions, criminal or otherwise, she frequently replied “Sam did.”

Of course, some critics, including Bankman-Fried’s defense lawyers, have noted that Ellison might have been a compelling witness, but she was not a whistleblower.

“There is no question she deserves leniency,” wrote Dennis Kelleher, president of the nonprofit organization Better Markets. But at the same time, he said, “she could have single-handedly stopped this fraud at any time, long before billions of dollars were lost, hundreds of investors were defrauded, and tens of thousands of customers were ripped off.”

When FTX collapsed, customers were locked out from their trading accounts. But in a surprise outcome for a bankruptcy, FTX estate overseers said they had recovered enough assets to pay most of its creditors back in full, with interest, thanks to a surge in the value of its crypto holdings.

While sentencing is entirely up to Judge Kaplan’s discretion, legal experts say it’s highly unlikely Ellison will end up in prison.

In the Southern District of New York, where the case was tried, “the large majority of white-collar cooperators receive zero jail time,” said Jordan Estes, a former federal prosecutor who is now a partner at Kramer Levin. And that’s particularly true when they have otherwise led a law-abiding life, she added.

Josh Naftalis, also a former federal prosecutor, noted that “a key issue that Kaplan will consider in sentencing Ellison is whether the size of the fraud — billions of dollars in losses — nonetheless requires some term of imprisonment.” Though Naftalis, now a white-collar defense attorney at New York law firm Pallas, added that prosecutors’ description of her cooperation as “extraordinary,” suggests prison is unlikely.

Other FTX executives’ cases are still in progress.

Ryan Salame, a former FTX executive, was sentenced to more than seven years in prison after pleading guilty to a campaign finance violation and running an unlicensed money transmission business. Two other former executives, Nishad Singh and Gary Wang, who took plea deals and testified against Bankman-Fried, are due to be sentenced this fall.

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