For executive connected to FTX collapse (and Sam Bankman-Fried’s girlfriend), federal guidelines call for LWOP, but probation office recommends time served

September 11, 2024

If anyone wants a good example of the federal sentencing guidelines not doing an effective job of guiding a federal sentencing judge, consider the specifics of the upcoming high-profile sentencing of Caroline Ellison. This CNBC story about a sentencing filing provides some of the background, as well as helpful links to some key court documents:

Lawyers for Caroline Ellison, the star witness in the prosecution of FTX founder Sam Bankman-Fried, are recommending no prison time for their client’s role in the implosion of the crypto empire that was run by her former boss and ex-boyfriend.

In a court filing Tuesday night, the attorneys said that, at most, Ellison should be sentenced to time served and supervised release because of her swift return to the U.S. from FTX’s Bahamas headquarters in 2022 and her choice to voluntarily cooperate with the U.S. attorney’s office and financial regulators in helping them understand what went wrong at FTX and sister hedge fund Alameda Research.

Judge Lewis Kaplan, who presided over Bankman-Fried’s case, cited Ellison’s testimony when he decided in March to sentence the FTX founder to 25 years behind bars. Ellison, who ran Alameda Research, agreed to a plea deal in December 2022, a month after FTX spiraled into bankruptcy. Unlike Bankman-Fried, who was convicted of all seven criminal fraud charges against him, Ellison pleaded guilty to conspiracy and financial fraud charges, rather than go to trial.

The Tuesday filing also refers to the recommendation of the court’s Probation Department that Ellison be given a sentence of “time served with three years of supervised release” as a credit to her “extraordinary cooperation with the government” and “her otherwise unblemished record.” Lawyers added that the department’s presentence report, which referenced numerous character testimonials speaking to Ellison’s ethics and integrity, also recommended that she not be fined. “Caroline poses no risk of recidivism and presents no threat to public safety,” the filing says. “It would therefore promote respect for the law to grant leniency in recognition of Caroline’s early disclosure of the crimes, her unmitigated acceptance of responsibility for them, and — most importantly — her extensive cooperation with the government.”

In the filing, FTX CEO John Ray, who has been guiding the crypto firm through bankruptcy proceedings, describes Ellison’s cooperation as “valuable” in helping his team protect and preserve “hundreds of millions of dollars” in assets. He added that she has worked with his advisors to provide information regarding private keys to cryptocurrency wallets that contain “estate assets, DeFi positions, FTX exchange internal account information, the use of third-party exchanges for pre-petition trading, and pre-petition auditing practices.”

The 67-page document describe large swaths of Ellison’s life, starting from her earliest days in Boston and stretching into her protracted and troubled romance with Bankman-Fried. In that time, she “moved around the globe at his direction, first to Hong Kong and later the Bahamas,” and “worked long, stressful, Adderall-fueled hours,” the filing says. Bankman-Fried forced Ellison into a sort-of isolation, culminating in her moral compass being “warped,” the lawyers say. At his direction, Ellison helped “steal billions,” all while living “in dread, knowing that a disastrous collapse was likely, but fearing that disentangling herself would only hasten that collapse.”

“Bankman-Fried convinced her to stay, telling her she was essential to the survival of the business, and that he loved her,” all “while also perversely demonstrating that he considered her not good enough to be seen in public with him at high-profile events,” the filing says.

Though I have only had a chance to briefly scan Ellison’s sentencing memorandum, I noticed it included no objection to the calculated guideline range, which produced “the Guidelines sentence of life imprisonment, reduced to the statutory maximum of 1,320 months” (110 years). As guideline mavens know, the massive “loss” in this case drove Ellison’s guideline calculation to produce a recommended LWOP sentence; as federal sentencing mavens know, pleading guilty and providing “extraordinary cooperation with the government” is one critical way a defendant can seek to get a judge to ignore the guidelines at sentencing.

It will be interesting to see if the feds ask for any prison time here, but I am quite sure they will not be urging Judge Kaplan to follow the guidelines. After all, the feds urged a sentence well below LWOP even for Sam Bankman-Fried even though his guideline calculation was literally “off the grid” and had the highest calculated offense level I had ever seen. White-collar prosecutors and defense attorneys have long known, of course, that guideline calculations in high-dollar, white-collar cases often amount to a kind of Kabuki theater amounting to little of real substance. That reality is surely on display, yet again, in the FTX sentencings.

Some prior related posts about SBF’s sentencing