As a reminder, Sam Bankman-Fried’s FTX crypto exchange officially went bankrupt last month. Various evidence points to its close ties to trading firm Alameda, which was also founded by Sam but then run by other people.

Allison served as head of the firm, while also having a close relationship with Bankman-Fried. Since the bankruptcy of FTX she has been actively co-operating with the investigation, thanks to which Caroline’s lawyers have been able to obtain substantial relief in her punishment. In particular, Allison initially pleaded guilty to seven counts, which put her at risk of up to 110 years imprisonment. However, the sentence was considerably reduced as a result of cooperation with the authorities.

Former Alameda Research executive Caroline Ellison

What happened with FTX and Alameda

Here is a transcript of the dialogue between Judge Ronnie Abrams and Allison, which reveals new details of the case.

Allison: I’m really sorry about everything I did. I knew it was wrong.
Abrams: Did you know that your alleged actions were illegal?
Ellison: Yes.

Sam Bunkman-Fried and Caroline Ellison

Judge Abrams had withdrawn from the case the day before because she claimed there was a conflict of interest. Her husband had previously worked for a company that provided consultancy services to FTX, which means she has essentially no right to prosecute the case.

According to Allison, her trading firm provided its creditors with “quarterly reports that hid transactions worth billions of dollars between Alameda and FTX”. All this was happening with the full knowledge of Bankman-Frieda, Caroline noted. Here’s her rejoinder.

I have agreed with Mr. Bankman-Fried and others not to publicly disclose the true nature of the relationship between Alameda and FTX, including the Alameda loan agreement.

Mind you, as it emerged after the FTX bankruptcy, Alameda Research management may have used FTX user funds for their own transactions. The funny thing is that the volume of the loans was unlimited, and the representatives of the trading firm paid nothing for them. That is, in fact, it was a separate bank for Alameda, the owners of the funds were not aware of anything.

FTX

That very loan agreement is essentially Alameda’s unlimited privileges in the use of FTX funds. Caroline continues.

I understood that exchange executives had activated special settings on Alameda’s FTX.com account that allowed the firm to maintain a negative balance in various currencies and tokens. In practical terms, such a scheme allowed Alameda to access an unlimited line of credit without having to provide collateral and pay interest on negative balances, as well as not being subject to margin requirements or liquidation protocols from FTX.com.

According to Decrypt’s sources, Alameda has accumulated a substantial debt to FTX. The situation got out of hand, but everyone knew about it – including Sam Bankman-Fried.

Recall that until a couple of weeks ago Sam was trying to make himself look like a victim of circumstance, a similar agenda was being promoted in his news by many major US media outlets. However, according to Ellison the former FTX executive was well aware of the situation, which means his actions could well be described as fraud and deceiving his clients.

As FTX ran into a serious funding shortfall, executives at the exchange started using clients’ money to maintain both the platform and Alameda. Here’s how Allison commented on this.

I understood that FTX would have to use customer money to fund its loans to Alameda. Most FTX customers did not expect FTX to lend their funds and deposits in conventional currency to Alameda representatives in this way.

Caroline also reached out to those affected.

I want to apologise for my actions to the affected FTX customers, Alameda creditors and FTX investors. Since the collapse of FTX and Alameda in November 2022, I have worked hard to help recover assets for the benefit of customers and to cooperate with the government investigation. Today I am here to take responsibility for my actions by pleading guilty.

Crypto investors after the FTX collapse

On Caroline’s part, this is probably the most advantageous strategy to pursue in court: after all, pleading guilty and cooperating beforehand has enabled her to avoid a lengthy prison sentence. However, the trial itself is not yet over. That means it’s not out of the question that the executives of Bankman-Fried’s crypto empire will also face charges from the US Securities and Exchange Commission.


We believe that the testimony provided by Caroline Ellison will make the future much more difficult for Sam Bankman-Friede. Apparently she has decided not to feel sorry for her former colleague and is now actively seeking all points of evidence to prove his guilt. Accordingly, the prospect of punishment for Sam at least now looks rather long. However, the final verdict in the case will ultimately come from the judge anyway.