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There were many similarities between Caroline Ellison and Sam Bankman-Fried.
Both were the children of academics, both were hailed as math geniuses, and both embraced “effective altruism” – a philosophy that involves making large sums of money to fund philanthropic pursuits that benefit society to the greatest extent possible.
On paper, it appeared to be a perfect match.
In 2015, they crossed paths on Wall Street and their relationship blossomed into both a romantic and professional partnership. Together, they built a highly successful cryptocurrency empire that caught the attention and endorsement of celebrities.
After eight years, Ellison was instrumental in the downfall of her ex-boyfriend as she testified against him as the main witness in his trial for a multi-billion dollar fraud.
Bankman-Fried was found guilty on Thursday, November 2nd of all charges, which included two fraud charges and five conspiracy charges, after his well-known trial in Manhattan.
The jury was informed about the actions of the young cryptocurrency expert who deceived customers of his company FTX by using their funds to repay the debts of Alameda Research, a hedge fund he established in 2017.
He utilized the funds for his extravagant way of living, including buying expensive properties and making substantial political contributions.
Currently, the 31-year-old could potentially receive a sentence of up to 110 years in jail.
Ellison’s sudden loss of status occurred subsequent to his admission of guilt for seven charges of fraud and conspiracy.
She made a deal with prosecutors that would result in a less severe punishment, in return for providing incriminating testimony against her former partner.
Bankman-Fried and Ellison’s initial encounter took place at Jane Street Capital, a financial firm in Wall Street, during the summer of 2015. Bankman-Fried was tasked with instructing her group of interns on trading techniques.
This is where Ellison admitted to being infatuated with Bankman-Fried, who eventually became her partner and supervisor.
Ellison testified in court that she was quite afraid of him during the initial days.
However, she was also attracted to his potential to utilize mathematics as a moral compass.
She stated that she was drawn to individuals who approached problem-solving in a numerical and rigorous manner. Prior to this, she did not feel a strong inclination to make a positive impact in the world.
However, in contrast to Bankman-Fried, Ellison expressed uncertainty about her abilities and questioned if her work on Wall Street was making a beneficial difference in the world.
She expressed feeling discontent and unsure of her impact while working at Jane Street Capital.
After three years, Ellison was convinced to leave Jane Street Capital and join Bankman-Fried’s Alameda Research, a cryptocurrency trading company, as the CEO. She saw this as an opportunity to implement her beliefs in effective altruism.
SBF, also known as Bankman-Fried, established Alameda Research in 2017 when he discovered a loophole in crypto values that caused Bitcoin to be traded for a slightly lower price in Asia compared to the US.
However, once Ellison joined the company, the intention to “do good” was not entirely successful.
While employed at the organization, she claimed to have witnessed a negative aspect of Bankman-Fried’s utilitarian beliefs.
During his trial, Ellison testified that he identified as a utilitarian and rejected the common justifications for moral rules like “don’t lie” and “don’t steal” within utilitarianism. He believed that the only important moral rule was to do whatever would maximize utility, or create the greatest amount of good for the greatest number of individuals or beings.
She stated that Bankman-Fried did not believe that principles such as “do not lie” or “do not steal” aligned with his utilitarianism ideology.
According to the Wall Street Journal, just two weeks after starting her new job, Ellison called her mother and tearfully confessed that she had made a major error in her life.
The partners at Alameda were unhappy and convinced the company’s lenders to request a refund. This was due to their disappointment with Bankman-Fried and his programming software that allowed them to trade Bitcoin at a higher value than its actual worth.
Ellison referred to this as the start of a never-ending feeling of anxiety over Alameda’s financial situation.
In 2019, Bankman-Fried introduced the FTX trading platform, marketed to investors as a reliable and user-friendly exchange that generated profits through transaction fees.
In 2021, when Bitcoin’s value skyrocketed, FTX emerged as one of the biggest players in the world of cryptocurrency trading, with an estimated worth of $32 billion.
However, FTX’s financial achievements did not align with Alameda’s, as their finances were chaotic due to their trading system, Modelbot, developed by Bankman-Fried. This system was designed to trade approximately 500 cryptocurrencies on around 30 unregulated exchanges, primarily located in Asia.
The company suffered significant financial losses due to the system, resulting in limited funds for trading and repaying customers’ loans upon request.
Ellison reported that Bankman-Fried instructed her to utilize FTX customer funds to support Alameda, resulting in the outcome.
In court, Ellison stated that she engaged in criminal activities within the company, such as “deception, plotting to deceive, and illegally moving money.”
However, she maintained that Bankman-Fried was responsible for the crimes and that he was the mastermind behind them.
The pair worked together to deceive FTX clients and investors, as well as Alameda’s creditors for an extended period of time.
Sam was the one who made the call to use FTX customer funds to make up for Alameda’s deficit, which is at the core of the alleged deceit.
Ellison testified that Bankman-Fried instructed her multiple times to repay loans by using funds from FTX customers. She stated, “I interpreted his instructions as meaning that I should use customer funds from FTX to pay back our loans.”
She also stated that her former partner’s practical approach to life made her “increasingly inclined to engage in dishonest and unlawful behavior”.
On the other hand, Bankman-Fried argued that Ellison was to blame for Alameda’s financial troubles. He claimed that she did not properly protect the fund from market fluctuations by hedging its financial positions earlier in 2022.
The defense of the cryptocurrency billionaire also revolved around their intermittent romantic relationship, which began in 2018 and created issues in their professional partnership.
During the duration of our relationship, he was also my supervisor at my job, leading to some uncomfortable moments,” Ellison stated.
In our personal relationship, I often desired more from it, but I frequently felt that my partner was distant and not fully engaged with me.
In 2022, the couple ended their relationship. Defense lawyer Mark Cohen implied that Ellison’s heartbreak caused her to hinder her business communications in a harmful manner.
Ellison testified that he struggled with having face-to-face discussions with him and actively avoided spending time with him in social situations. However, they continued to communicate for work purposes through Signal.
During this time, both corporations continued to experience financial losses due to customers recalling billions of dollars in loans and the depreciation of cryptocurrency prices.
Ellison expressed worry that if anyone discovered the truth, everything would fall apart.
In November 2022, Ellison’s forecast was proven correct when Coindesk, a publication focused on cryptocurrency trading, released a leaked balance sheet. The document revealed that Alameda and FTX had an unusually close relationship and that Alameda’s worth was largely based on a digital coin created by a sister company.
The news caused a ripple effect in the cryptocurrency community as FTX users hurried to retrieve their money, revealing a shortfall of $8 billion in FTX’s balances.
On November 8, Bankman-Fried’s individual fortune decreased by approximately $16 billion. FTX declared bankruptcy a few days afterwards and Bankman-Fried stepped down from his position as CEO.
On December 12th, he was taken into custody while in the Bahamas.
Ellison was taken into custody as well.
Initially, they both claimed innocence, but doubts arose about whether the ex-partners would betray each other.
The inquiry was resolved when it was revealed that Ellison had made an agreement with the prosecution and altered her plea.
She eventually gave testimony stating that the eventual downfall of FTX had brought her a sense of immense relief because it meant she no longer had to be deceitful.
Her testimony about her former boyfriend was damning, giving jurors a person insight into the life behind the crypto empire – and levelling the lion’s share of the blame on Bankman-Fried.
It seems to have been successful.
Bankman-Fried remained still, gazing at his folded hands in his lap, as the court announced the guilty verdict on Thursday.
At the age of 31, he is currently facing the possibility of spending the rest of his life in prison.
As of now, the outcome for Ellison is still unknown.