By Luc Cohen
NEW YORK (Reuters) -Former cryptocurrency executive Caroline Ellison was sentenced on Tuesday to two years in prison for her role in her former boyfriend Sam Bankman-Fried’s theft of $8 billion in customer funds from the now-bankrupt FTX exchange he founded, even as the judge recognized her extensive cooperation with prosecutors.
U.S. District Judge Lewis Kaplan said at a sentencing hearing in Manhattan federal court that he was not comfortable with remorse and cooperation being a “get out of jail free card” in a case so serious. Prosecutors have called Bankman-Fried’s actions one of the biggest financial frauds in U.S. history.
Ellison, 29, pleaded guilty to seven felony counts of fraud and conspiracy and testified as a prosecution witness in the trial of Bankman-Fried, who was convicted of fraud and other charges last year and is serving a 25-year prison sentence arising from FTX’s November 2022 collapse.
The crimes to which she pleaded guilty carried a maximum sentence of 110 years in prison. Her lawyers had argued that Ellison should get no prison time due to her cooperation, and prosecutors sought leniency as well.
Kaplan during the hearing told Ellison she was “gravely culpable in this fraud – there is no doubt about it,” though he said her “remarkable cooperation” represented a “fundamental distinction” between her and Bankman-Fried.
“There’s no way you’re ever going to do something like this again, I am persuaded,” the judge told Ellison. “But here’s the thing: this was, if not the very greatest financial fraud ever perpetrated in this country or anywhere else, close to it.”
Ellison crossed her hands on her lap and looked down at the defense table after the sentence was read.
Ellison earlier addressed the judge, speaking at a rapid pace and reading from a prepared statement.
“Not a day goes by when I don’t think about all the people I hurt,” said Ellison, a Stanford University graduate whose parents and two sisters were present in court. “My brain can’t even truly comprehend the scale of the harms I’ve caused. That doesn’t mean I don’t try.”
Ellison from 2021-2022 ran Alameda Research, a cryptocurrency-focused hedge fund Bankman-Fried founded. Ellison said she thought about leaving Alameda many times.
“Every time I thought about it, I heard Sam’s voice in my head,” Ellison told the judge.
“Ignoring that voice in my head and speaking out would have been brave,” Ellison said, beginning to choke up and sniffle. “I’m sorry I wasn’t brave.”
Without recommending a specific prison term, the U.S. Attorney’s office in Manhattan, which brought the charges, urged Kaplan to go easy on Ellison.
“I cannot overstate the importance of Ms. Ellison’s testimony in convicting Sam Bankman-Fried,” prosecutor Danielle Sassoon told the hearing.
Prosecutors said Ellison met with them about 20 times to help them piece together FTX’s unraveling and make their case against Bankman-Fried.
“Unlike Bankman-Fried, she is not cunning. There is no evidence she was driven by greed, or that an appetite for risk or power was part of her nature,” Sassoon said.
‘HONESTY AND OPENNESS’
Anjan Sahni, Ellison’s lawyer, said during the hearing that sparing Ellison from prison time “would send a powerful message about the value of timely, honest and full cooperation with the government in cases of financial crime.”
Sahni said Ellison spoke honestly both in interviews with prosecutors and in her testimony about her actions and her relationship with Bankman-Fried.
“She didn’t shy away from the details, however embarrassing they were,” Sahni told the judge. “Her honesty and openness (were) ultimately critical to the government’s case.”
Nishad Singh and Gary Wang, two other former FTX executives who cooperated with prosecutors, are scheduled to be sentenced on Oct. 30 and Nov. 20, respectively.
Bankman-Fried, 32, rode a boom in cryptocurrency prices during the COVID pandemic to a net worth of, according to Forbes magazine, $26 billion by October 2021. He gained prominence as a generous donor to philanthropic causes and Democratic politicians.
His wealth evaporated when FTX collapsed in November 2022 amid a flurry of customer withdrawals. Bankman-Fried was charged a month later with stealing FTX customer funds to plug losses at Alameda. Ellison pleaded guilty in December 2022.
Bankman-Fried is appealing his conviction and sentence, arguing that Kaplan wrongly excluded evidence showing he thought FTX had enough funds to cover customer withdrawals. In testifying in his own defense at trial, Bankman-Fried admitted to making mistakes while running FTX, but denied stealing money.
Ellison testified over three days at Bankman-Fried’s trial, telling the jury he directed her and others to take money from FTX’s customers without their knowledge.